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Technology Stocks : TELECOM ITALIA SPA ADR SPON RP ORD.TFO -- Ignore unavailable to you. Want to Upgrade?

To: Wafa SHIHABI who wrote (3)	4/21/1999 6:16:00 PM
From: Wafa SHIHABI	Read Replies (1) \| Respond to of 5

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.