Telecom Italia and its holding company Olivetti have confirmed plans to merge.
Olivetti, which used to build office machines but has since turned into an investment company, is controlled by Telecom Italia’s chairman Marco Tronchetti Provera. Its main asset was its 55% stake in Telecom Italia. The new company will be called Telecom Italia and will be controlled by privately-held holding company Olimpia, which will hold a stake of between 14% and 15%.
Olivetti shareholders will receive seven shares for each Telecom Italia share, and will also be able to opt out of the merger during the 15 days following the May shareholders meeting that will be called to approve the merger. Shareholders also have the option of selling their stock for E1 in cash before the merger, a premium of 20% on its current price. Bearing in mind Olivetti’s E33.4 billion debt, its actual value is closer to 28 cents, according to analysts.
The companies said in a joint statement that the deal will allow the new Telecom Italia group to make better use of its debt load, to cut the average cost of capital, and to improve its cash earning per share. The new firm will have a debt load of about E40 billion euros. The company said it plans to cut that to about E34 billion euros in 2004, and is planning to offload almost E4.5 billion in assets.
The merger will take at least two links out of the ownership chain of eight holding and operating companies. In the past, Telecom Italia’s complex corporate structure had made it extremely difficult for the market to analyze its financial results.
The main losers in this deal will be Telecom Italia investors, who had earlier warned they would seek to block the proposed merger, and would consider legal action. The markets have also reacted badly to the announcement. Shares in Telecom Italia plunged a further 10% after trade was restarted, while parent company Olivetti’s shares rose 5.5%.
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