February 19, 1999
Olivetti Plans to Offer $58 Billion
To Purchase Rival Telecom Italia
By GAUTAM NAIK
Staff Reporter of THE WALL STREET JOURNAL
LONDON -- Olivetti SpA is preparing to make a bid valued at roughly
$58 billion to acquire its far larger telecommunications rival, Telecom Italia
SpA, The Wall Street Journal Europe has learned.
The planned bid hinges on a proposal by
Olivetti to first sell stakes in two Italian
telecom operators to Mannesmann AG of
Germany for $10 billion, said people familiar
with the situation. In addition to the cash from that transaction, Olivetti
plans to raise another $48 billion or so to acquire all the ordinary shares of
Telecom Italia, the former phone monopoly.
Olivetti expects to do this through a combination of cash, bank loans and
by issuing additional stock, according to people close to the situation. To
make the offer attractive to Telecom Italia shareholders, more than 50% of
the offer price is expect to consist of cash.
Olivetti and Mannesmann are close to clinching the transaction under
which the German company will buy for about $10 billion Olivetti's
interests in Infostrada, a new fixed-line operator, and Omnitel Pronto Italia
SpA, a highly successful mobile-phone provider. Olivetti's board is
expected to vote on both aspects of the plan this Sunday, people familiar
with the situation said.
Investment bankers Donaldson Lufkin & Jenrette and Lehman Brothers
are advising Olivetti on the M&A aspects of the deal. Olivetti is also being
advised by Italy's Mediobanca and Chase Manhattan Bank on the
complex financing of the transaction to acquire Telecom Italia. The
Telecom Italia takeover could take three months or more to complete,
people close to the planned deal said.
This Sunday, the four banks are expected to submit a letter to Olivetti
declaring that they are "highly confident" that they can raise the necessary
funds to finance the transaction. The banks together plan to commit several
billion dollars of their own capital to finance the proposed takeover,
people close to the situation told The Wall Street Journal Europe.
Just Friday, Olivetti received a fresh infusion of cash that will help it make
a possible bid for Telecom Italia. Mannesmann paid Olivetti 647 billion lire
for a 12.4% stake in Oliman, the holding company that controls Omnitel
and Infostrada. That leaves Olivetti with a 50.1% stake in Oliman, while
Mannesmann's interest is 49.9%.
If Olivetti's plan to buy Telecom Italia succeeds it will count as Europe's
biggest telecom deal, and one of the continent's largest mergers ever. The
new company is expected to be spearheaded by Olivetti's chief executive
officer, Roberto Colaninno, who is expected to refocus the company,
make it more efficient and cut costs where possible. Mr. Colaninno has
won kudos for engineering a similar turnaround at Olivetti, which has seen
its stock price soar many-fold since he took over as CEO. By
comparison, Telecom Italia, the world's sixth-largest phone carrier, has
endured three different management reshuffles in just 18 months, while
seeing its stock suffer.
The planned sale of Olivetti's telecom assets to Mannesmann will also
affect Europe's wider telecom market. For instance, it suddenly gives giant
Mannesmann far greater access to the southern European phone market.
Mannesmann is the main foe of Deutsche Telekom AG, and also has
aspirations to become a European telecom giant.
An Olivetti takeover of Telecom Italia is by no means assured, however.
The deal could run into difficulties if Telecom Italia's major shareholders,
including the Agnelli family, oppose it. The company's relatively new
chairman, Franco Bernabe, may also fight a proposed takeover. However,
it is believed that the Italian government will back the transaction because it
keeps Telecom Italia in Italian hands.
Rumors about some kind of a deal involving Olivetti pushed up the
company's stock 0.26 euros, or 8.7%, to 3.25 euros on Milan's stock
exchange. Telecom Italia closed up 0.21 euros, or 2.4%, at 9.09 euros
Friday. Its American depositary receipts rose $6.375, or 6.4%, to close at
$106.4375 in New York Stock Exchange composite trading.
--Deborah Ball in Milan contributed to this story. |
