Reassured by Bonn, Telecom Italia Accepts
Proposal to Merge With Deutsche Telekom
An INTERACTIVE JOURNAL News Roundup
ROME -- Telecom Italia SpA's board of directors Wednesday accepted
a proposal to merge with Deutsche Telekom AG, after receiving German
government assurances that it wouldn't exercise its voting rights in
Deutsche Telekom.
Germany's Finance Ministry, the majority shareholder in Deutsche
Telekom, advised the Italian Treasury that it would refrain from influencing
the activities and corporate structure of the merged business, ministry
spokesman Torsten Albig told reporters in Bonn.
"The [German] government's philosophy is not to interfere with
management decisions" of privatized companies, Mr. Albig said. "We
believe this creates a basis for further negotiations between the two
companies."
The assurance was aimed at easing Italian concerns that the merger would
amount to a takeover by the German government of Italy's flagship
telephone company.
Sources said Telecom Italia's board accepted those pledges and approved
the official merger proposal one day after it had accepted the agreement in
principle pending reassurances concerning key issues.
Deutsche Telekom officials were not available for immediate comment
about the ministry's statement, but Mr. Albig said the company was
pleased with it.
The two companies are preparing a Thursday news conference in London
to explain what would be the world's largest merger.
Telecom Italia on Tuesday night said the plan called for the creation of a
new ad hoc company which would swap its shares for shares in Deutsche
Telekom and Telecom Italia, but didn't give financial details. A statement
from Telecom Italia was expected later Wednesday.
Telecom Italia stipulated Tuesday that the merger agreement would have
to be "substantially a merger of equals," and it did not specify what weight
each company would have in a new holding company to be set up to
combine the two firms. Analysts have speculated that Deutsche Telekom
would account for between 56% and 60% of the holding company.
The Italian government owns just 3.4% of Telecom Italia, but its so-called
golden share gives it veto power over major decisions like mergers.
Company sources told The Wall Street Journal Europe Wednesday that
the merger values one Deutsche Telekom share to be worth exactly three
Telecom Italia shares. That would allow Deutsche Telekom shareholders
to own 57% of the new group when it is formed, while Telecom Italia
shareholders would have the rest.
The deal values Telecom Italia ordinary shares at between 12.50 euros
and 12.60 euros ($13.29 and $13.40) a share, sources said. In addition,
5.5 Telecom Italia non-voting savings shares will be worth one share in the
new ad hoc company.
Shareholders could still opt for a hostile bid from Olivetti SpA, which is
offering 11.50 euros for each Telecom Italia ordinary share.
Sources also told The Wall Street Journal Europe that the company will
have a 10-person board whose chairman will alternate each year between
the Italian and German company. There will also be two co-chief executive
officers.
Elsewhere, the repercussions of the Deutsche Telekom-Telecom Italia
talks are already being felt. One of the main victims could be WIND
Telecommunicazioni SpA, the alternative fixed and mobile telecom
company that is one of Telecom Italia's main rivals. WIND is
51%-controlled by Italian electric utility ENEL SpA, with the remaining
stake split evenly between the German carrier and France Telecom SA.
WIND has had no comment on the Deutsche Telekom-Telecom Italia
talks. However, one person close to the company said Tuesday that the
Germans' attempt to merge with Telecom Italia violates a partnership pact.
The pact requires all three partners to maintain their stakes in WIND for
five years and forbids any of the three to open talks with the competition.
As a result, WIND regards Deutsche Telekom's participation in the
venture as effectively finished, despite the outcome of the Telecom Italia
talks, the person said. ENEL Chief Executive Franco Tato has told the
company's lawyers to start procedures to seek damages, which could
exceed one trillion lire ($550 million).
The combined Telecom Italia-Deutsche Telekom would have a market
value of nearly $200 billion. Deutsche Telekom has a market capitalization
of about $117 billion while Telecom Italia is at about $77 billion.
The merger could exceed the pending deal between Exxon Corp. and
Mobil Corp., which was valued Tuesday at about $85 billion, based on
the price of Exxon stock.
Analysts said a merged colossus would have tremendous bargaining power
to negotiate downwards the price of contracts for capacity outside its
network.
But overall, the synergies wouldn't be eye-popping and many question the
merits of merging two lumbering former monopolies -- especially with
young telecommunications upstarts gaining ground in the newly liberalized
markets of Germany and Italy.
DT's move also is viewed as defensive because it is seen as acting mainly
to block off strengthening rival Mannesmann AG for access to the thriving
Italian market.
Deutsche Telekom shares fell 1.4% in Frankfurt trading Wednesday. |
