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Olivetti savors Italia spoils
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May 24, 1999: 7:23 a.m. ET
Underdog outlines strategic plans after $65 billion victory over Telecom Italia
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LONDON (CNNfn) - The breathtaking success of Olivetti's hostile $65 billion takeover of Telecom Italia is set to transform Europe's telecom and corporate finance landscapes.
Olivetti secured control of 51.02 percent of TI Friday, passing the 35 percent threshold it set itself and gaining the majority support required to head off threats of legal action by TI management made during the heated three-month takeover battle.
Telecom Italia shares climbed 3.3 percent to 10.00 euros in early trading Monday, still well below the 11.5 euro a share equivalent of Olivetti's stock, bond and cash offer. Olivetti shares dipped 2.8 percent to 3.28 euros.
Olivetti will pay 30.83 billion euros ($32.8 billion) for its majority stake and has already outlined a slew of asset sales and fund-raising ventures to ease the strain on its balance sheet.
Olivetti Managing Director Roberto Colaninno wasted little time in stamping his authority on the new acquisition by ditching TI's plans for a merger with Deutsche Telekom, the centerpiece of TI Chief Executive Franco Bernabe's defense plan.
Bernabe and Colaninno are due to meet Monday, but the future of the TI boss and Deutsche Telekom chief executive Ron Summer remain in serious doubt.
Merger plans get disconnected
Asset sales planned
Colaninno has steamed ahead with the strategic plan for TI and will cut 13,000 jobs from the firm's fixed line operation in addition to 6,500 layoffs scheduled by TI's existing management. Olivetti aims to cut TI's annual costs by 2.32 billion euros and forecasts 4 percent annual earnings growth from a series of efficiency measures it claims will bring down Italian telecom prices.
Colaninno has also shelved TI's $20 billion plan to buy out minority shareholders in its cellular arm, Telecom Italia Mobile. Olivetti plans to increase co-operation between the companies short of full integration, and seek European alliances for TIM, whose shares dipped 0.5 percent to 5.99 euros.
Deutsche Telekom: the biggest loser?
Deutsche Telekom looks set to be the biggest loser from the battle for Europe's fourth-largest telecom group. The German giant's planned merger poisoned relations with longtime partner France Telecom and threatens to bring down the already fragile GlobalOne alliance involving the French and German companies and U.S. long-distance provider Sprint (FON).
Deutsche said it has no plans to sell its 2 percent stake in France Telecom despite the French firm's threat of legal action in the wake of the planned TI merger.
The German and French stock markets were closed Monday for a public holiday.
Deutsche Telekom's search for new partners may accelerate its interest in One2One, the cellular unit of Britain's Cable & Wireless (CW.), already slated for a sale.
Funding needs
The scale of the deals released by Olivetti's successful bid is set to spark a surge in corporate finance activity. While advisers celebrate a fees bonanza, funding the transactions has tested the limits of Europe's equity and bond markets and found them more flexible than many expected.
Olivetti has already secured a 30 billion euro loan -- the largest ever corporate facility -- and plans to refinance part of this with a 15 billion euro bond offering, surpassing the $8 billion raised earlier this year by AT&T (T).
Germany's Mannesmann is set to acquire Olivetti's existing telecom assets and has the 2 billion euro funding in place through a bond issue earlier this month. Deutsche Telekom is also set to raise fresh funds in the equity market to fund its own acquisitions.
Corporate landscape to alter
Italy's corporate landscape is also set to change. The hostilities bubbling during the TI-Olivetti takeover highlighted the failings of the country's underdeveloped takeover rules. Olivetti advisers said the accusations and counteraccusations from both sides showed there was a clear need to tighten the rules on acceptable practices during hostile takeover bids.
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