The incumbent carriers of Germany and Italy, Deutsche Telekom AG and Telecom Italia SpA, yesterday unveiled their plans to merge, forming Europe’s largest and the world’s second largest telecommunication company after NTT Corp in Japan. Approved internally yesterday, the deal still needs clearance from both groups of shareholders, and is sure to be scrutinized by the relevant national and EU regulatory bodies. Italia has been fending off a two month-old hostile bid from Olivetti SpA.
The offer values Deutsche Telekom at 99bn euros ($106bn) and Telecom Italia at 63bn euros ($67bn), giving the combined telco a market capitalization of 162m euros ($173bn). It currently requires an acceptance rate of at least 90% of Telecom Italia ordinary shares, though this threshold could be changed as circumstances dictate. The idea is, in any case, for the acquisition to be completed by the fourth quarter of this year. The resulting company will have two ‘co-CEOs’, Ron Sommer and Franco Bernabe, who will be named by a 20-member supervisory board. That board will be made up of five directors named by TI and five by DT, with the other ten being nominated by their employees and labor unions. The new, as yet unnamed telco will have two headquarters, in Bonn and Rome.
Despite this duplication of function, Sommer and Bernabe predicted cost savings of 600m euros ($636m) in the first year of operations, thanks to synergies. They would not be drawn on how many of the combined company’s 300,000 employees could expect to be dismissed. Telecom Italia Mobile, TI’s highly successful, partly-owned cellular arm and the largest operator in Europe, will be merged with T-Mobil, DT’s mobile subsidiary.
Sommer was at pains to point out that the proposed merger is not being carried out ‘against France Telecom SA or Global One’, DT’s three-way datacoms venture with the French incumbent and US long distance carrier Sprint Corp. But negotiations with the French will now begin with a view to defining the future of the Deutsche/France Telecom alliance, which has certainly been shaken by the sudden change of direction by Bonn. France Telecom was yesterday openly critical of the merger plan, saying it had been carried out ‘without any prior consultation with France Telecom’, and such constitutes ‘a clear violation of the undertakings’ between it and Deutsche Telekom. But France Telecom claimed its international position is ‘not significantly affected by this takeover’, adding that the new scenario now gives it ‘greater flexibility to explore new strategic options internationally’.
