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Olivetti bid creates a buzz
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February 22, 1999: 8:25 a.m. ET
Milan shares rocket, but analysts say hostile bid for Telecom Italia is doomed
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LONDON (CNNfn) - Trading in Telecom Italia shares were suspended briefly Monday after Olivetti's $58 billion hostile bid drove the stock above its 10 percent limit and sent reverberations around the Italian telecom sector.
But analysts said the audacious attempt by the smaller Italian company to snap up the former state-owned telecom group through a 10 euro per share takeover bid looks doomed to fail.
Initial reaction to the deal pushed Telecom's shares to their 10 percent upper limit in Milan, leading to a brief suspension. The shares fell slightly in early afternoon to 9.56 euros up 5.6 percent.
The Milan stock exchange also suspended trading in Telecom's 52.5 percent-owned cellular subsidiary, Telecom Italia Mobile, after the stock also rose 10 percent. The stock later settled 3.3 percent higher at 5.95 euros.
Analyst believe however, that Olivetti's cheeky bid, which was leaked to the Italian press last week, will fail. Olivetti's shares traded 5 percent lower at 3.05 euros in early afternoon trading.
"There is no way Olivetti is going to get [Telecom Italia] at the current price. They will have to pay 15 to 20 percent more," said Jonathan Shantry, head of European telecom at Credit Lyonnais in London.
Raising the bid, however, is unlikely to find favor with Olivetti's shareholders, said Shantry. It will be hard to get any value out of Telecom at higher levels, he said, while Olivetti is proposing to sell its current phone operations "too cheaply."
In a connected deal, Germany's Mannesmann (FMMN) said Sunday it had reached a conditional agreement with Olivetti to buy its stakes in mobile phone operator Omnitel and fixed-line phone firm Infostrada for $8.5 billion.
The deal will depend on Olivetti's bid for Telecom being successful. The company would need to dispose of its current businesses to gain regulatory clearance. Mannesmann's shares were up 4.4 percent at 124.85 euros.
James Golob, telecom analyst at Deutsche Bank Securities, agreed the initial offer is set to fail. "I don't think the bid at 10 euros stands any chance of success," he said.
Golob was similarly dismissive of reports that a white knight could emerge to save Telecom from Olivetti, especially as it would have to be an overseas rival.
British Telecom would not comment on suggestions that it could emerge as a friendly suitor. Golob thought the U.K. operator was unlikely to consider any bid, with its alliance partner AT&T, as the two already have an Italian subsidiary.
MCI-WorldCom, however, does not have a presence in one of Europe's largest telecom markets, and Golob fingered them as one of the few possible suitors.
He stressed, however, that political support would be needed for any successful deal. Prime Minister Massimo D'Alema has already said he does not want to see Telecom falling prey to non-Italian interests. "It is natural for our interest to be that this great company should not be dismembered or fall under the control of foreign interests," he said at his Monday morning press briefing, Reuters reported.
Telecom rejected Olivetti's offer and has scheduled a board meeting for Thursday to discuss its options. Olivetti's board will meet Wednesday to convene an extraordinary shareholders meeting in a bid to raise more capital.
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Olivetti
Telecom Italia
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