The most optimistic quotes yet:
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April 22, 1999
Telecom Italia CEO: Confident Offer Will Be Tax-Free
Dow Jones Newswires
MILAN -- Telecom Italia SpA (TI) Chief Executive Franco Bernabe said Thursday a combined Telecom Italia-Deutsche Telekom (DT) entity will have debt of EUR42 billion, or 1.4 times earnings before interest taxes debt and amortization.
In a joint press conference with DT CEO Rom Sommers, Bernabe also assured that this level of leverage will give the new company sufficient amount of flexibility.
DT and TI have agreed to a merger that would create the world's second largest telecommunications company. DT will have 56% of the new company while Telecom Italia will have 44% of the new company.
The two company heads stressed throughout the press conference that the deal was a full merger, not an alliance, aimed to create a European global powerhouse.
The merger they said must be completed by March 1, 2000.
"We have to get a global reach," Bernabe said. "In order to get a global reach we must expand. We are already thinking about the next step."
The new group will have operations or joint ventures in 26 countries, have 33 million mobile phone customers, they said.
Regarding expansion, DT's Sommer said that the merger would allow the companies to do acquisitions that they couldn't do alone. He also said that the U.S. - where neither company has a presence - would be the next area of expansion.
He also said that there were still opportunities in Europe, namely the U.K.
Bernabe left open the possibility that TI could eventually buy the 40% of Telecom Italia Mobile (I.TIM) which TI doesn't already own.
TI, in pre-DT defensive plan, was to make a buy-out offer for TIM. Bernabe on Thursday said pressure to fully integrate TIM was lesser now that the new group would already have the mobile operations of DT fully integrated. A buy-out of TIM will be discussed when the two groups iron out their industrial plan, he added.
Sommer noted that mobile phone services were the growth area for the new group.
Sommer downplayed DT's likely decision to abandon a phone joint venture with France Telecom SA (FTE) in Italy by veering toward TI. That would occur because it can't merge with TI and be allowed by regulators to keep its 24.5% stake in Wind, a new Italian phone company in which France Telecom also has a 24.5% stake.
"Our merger is intended to make us a European powerhouse, it's not intended against our existing partners," he said.
He said the merged group could even strengthen another joint venture, business services venture Global One, which the two operate alongside Sprint Corp. France Telecom declined to comment on Sommer's statements.
On jobs, Bernabe said each company already had "rationalization" plans, but said that he wasn't ruling out additional job cuts. He stressed that the merged group with 300,000 employees is in a growth business, although he also forecast greatly increased competition which would force them to cut costs.
Officials said Thursday that the combined group expects to have a pretax cash flow savings of more than EUR1 billion a year. Bernabe noted that the combined groups' net debt of EU42 billion was around 1.4 times earnings before items and amortization costs, in line with other competitors.
Sommer also said the cost of the merger is less than the synergies in the first year. Officials also pointed to significant cost savings in the mobile businesses. Bernabe also sought to quell concern about signals of reticence about the merger by the Italian government. Bernabe said that the group will demonstrate the merits of the transaction for the companies, employees and European employment overall to the government over the next few weeks.
"When they realize the opportunity, they will support (the merger) and we will go ahead," Bernabe said.
Sommer said that DT will seek to get full German government support for the transaction, but noted that the German government must assure that selling its 72% stake in DT won't hurt the market.
In the new group, the government would have around 40%.
Bernabe sought DT as a white knight as it battles a hostile takeover bid from Olivetti SpA (I.OLV). Olivetti plans to offer TI ordinary shareholders EUR11.5 per share made up of EUR6.92 in cash and the rest in stocks and bonds. First indications are that the merger still leaves room for Olivetti's hostile bid for TI to prevail.
Analysts and investors said current TI investors might be more tempted by Olivetti's partial cash offer than the offer to swap largely for DT shares.
Bernabe said he was "confident" that the share swap operation for the merger would be tax-free for investors. That issue came up in some press reports overnight in Italy.
The merger would occur by the creation of a new company which would issue new shares. It would offer one new share for one DT share and one new share for three TI ordinary shares.
Sommer and Bernabe said there were no time limits on the two of them serving as co-chief executives of the new group.
The chairmanship of the group's supervisory board, as previously reported, will alternate each year, with the current head of DT's supervisory board.
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