U.S. Firm May Join Telecom Italia
And Deutsche Telekom in Merger
By DEBORAH BALL
Staff Reporter of THE WALL STREET JOURNAL
MILAN -- Telecom Italia SpA and Deutsche Telekom AG are in talks
with a third telecommunications company about joining in on their
proposed merger in order to strengthen the combination, says a person
close to the situation.
The two companies are speaking with a U.S. group about adding a third
member to the $76 billion merger, although the parties haven't yet decided
whether the newcomer would take a stake in the combined group, said the
person. Among the possible U.S. partners are BellSouth Corp. and SBC
Communications Inc.
"This would add a third leg to the merger," said the person. "But it hasn't
yet been decided in exactly what capacity."
Questions Raised
Deutsche Telekom and Telecom Italia are planning a merger that would
catapult the new company to the top ranks of global telecom companies,
but have so far received a cool reception from many investors, who have
raised questions as to the industrial logic of the deal. Furthermore, the
Italian government has balked at the plan, demanding guarantees that
Telecom Italia will enter the merger on equal footing and that the German
government will sell its 72% stake in Deutsche Telekom. In contrast, the
German government has been much more keen on seeing the merger go
forward.
Both companies will have to move fast in order to win over both the Italian
government and shareholders, with Olivetti's 60 billion euro ($63.57
billion) takeover bid for Telecom Italia already under way. And this week
could be key on both the governmental and market front. The two plan to
kick off a road show armed with fresh details of their industrial plan.
Furthermore, both companies are planning on calling board meetings this
week; Telecom Italia's board may convene a shareholders' assembly in
order to put the plan to a vote, said the person.
On the political front, both parties are waiting for a decision by a high-level
Italian governmental commission regarding the use of the so-called golden
share, or special veto powers the Italian Treasury retains over certain
privatized companies, including Telecom Italia. The government would like
to clarify its use of the special powers -- possibly as soon as Monday -- to
lift some uncertainty surrounding both the Telecom Italia-Deutsche
Telekom merger as well as the Olivetti bid. One provision will include the
right to use the golden share to block any operations that would leave a
privatized company in the hands of a state-controlled firm, precisely the
situation raised by their merger. However, this provision could be
abrogated by a clear commitment on the timing and method of the German
government's sale of Deutsche Telekom, said a government source.
Further Details Sought
On the same front, a clearer industrial plan will be critical to gaining the
approval of the Italian government, which has also raised questions as to
the logic of the merger. Indeed, no official contacts between the two
governments are planned at the moment, pending the presentation of
further details of the deal. Telecom Italia Chief Executive Franco Bernabe
and Deutsche Telekom Chief Executive Ron Sommer met with top
government officials in Rome late last week to try to drum up support.
Meanwhile, the Italian government has approached Olivetti about the
possibility that it could pursue a merger with Deutsche Telekom should the
Italian telecom upstart succeed in its bid to take over Telecom Italia, says
a person close to Olivetti. The government is concerned that the
fragmented nature of Telecom Italia's shareholding base would leave the
Italian side weak in the face of the 40% stake the German government
would hold in the new company. But if Olivetti managed to gain a
controlling stake in Telecom Italia, the former state monopoly would go
into the merger on a stronger footing, according to the government's
argument. But the source says Olivetti Chief Executive Roberto Colaninno
has so far rejected such an idea.
The curtain went up Friday on Olivetti's bid, which will run until at least
May 21, depending on whether Telecom Italia calls a special shareholders'
meeting to vote on the merger. The company also will hold a road show
starting this week to take advantage of the negative reception the Telecom
Italia-Deutsche Telekom deal has received so far. On Saturday, Telecom
ran full-page advertisements in Italian dailies, urging shareholders to block
the offer. "Do the right thing," read the ads. "Don't do anything. Hold on to
your shares." |
