The Italian government needs to be to be "absolutely neutral" in Olivetti SpA's hostile $58 billion bid to
acquire Telecom Italia, the world's sixth-largest phone company,
Premier Massimo D'Alema said Monday.
Telecom was a state monopoly that went private in 1997. The
Italian treasury still holds 3.4 percent of the shares and veto
power over major decisions through next year.
Despite the veto, which includes the power to stop an investor
from acquiring more than 3 percent of the stock, and despite
pressure from unions, D'Alema said the government should stay out
of the battle.
But, he added, the government would like Telecom to stay in
Italian hands and would prefer that it not be split apart.
Italy's biggest unions on Monday called for an urgent meeting
with the premier to discuss their worries that a takeover might
lead to layoffs. Telecom has around 126,000 employees, mostly in
Olivetti's bold bid for the Italian communications giant has
stunned the business world, in part because Telecom has more than
five times the market value of Olivetti. If Olivetti succeeds, it
would be Europe's biggest telecommunications deal.
Trading in Telecom Italia shares was so frenzied Monday that it
was briefly suspended after shooting up 10 percent at the opening.
The dollar volume of $1.6 billion in trades of Telecom Italia was a
record for any day's trading of any company's share on Italy's
Telecom closed up 8.5 percent and Telecom Italia Mobile,
Europe's biggest wireless telephone operator, which is 60 percent
owned by Telecom Italia, rose 6.4 percent. But Olivetti closed down
7.7 percent on concerns that it wouldn't be able to pull off the
The gain left Telecom Italia at 9.86 euros a share, about $10.86
at current exchange rates.
Analysts and traders say Olivetti isn't offering enough for
Telecom Italia. In its bid over the weekend, it offered to pay 10
euros, or $10.10 a share.
Goldman Sachs on Monday raised its investment recommendation for
Telecom Italia, saying it didn't think Olivetti was offering enough
and that Telecom Italia "could make a vigorous defense."
Telecom Italia enlisted some big investment bankers for the
looming battle. It said Monday it is being advised by J.P. Morgan,
Credit Suisse First Boston, Lazard Freres and Istituto Mobiliare
The Italian government was reportedly being advised by Morgan
Stanley Dean Witter.
The takeover will need a green light from Italy's market
watchdog agency, Consob, which is now studying the Olivetti filing.
If Consob says the filing doesn't provide enough information,
Telecom Italia would be free to try to counter the bid.
Another potential problem for Olivetti could be its plan to
raise cash by selling its investments in mobile operator Omnitel
Pronto Italia, as well as fixed-line operator Infostrada, to
Mannesmann, a German industrial holding company.
The Italian government granted Omnitel's operating license on
condition that it not be sold off for five years, and there is one
year left to meet that proviso.
Olivetti and Mannesmann control those two via a holding company
50.1 percent owned by Olivetti and 49.9 percent owned by
Mannesmann, the biggest rival to the former German telephone
monopoly Deutsche Telekom.
In Germany on Sunday, Mannesmann said it will pay Olivetti the
equivalent of $7.8 billion for its stakes in Omnitel and Infostrada
if the takeover bid succeeds.
Olivetti bid also relies heavily on debt financing from three
U.S. investment banks Chase Manhattan, Lehman Brothers and
Donaldson, Lufkin and Jenrette as well as Italy's Mediobanca.