Olivetti Prepares Bid for Larger Rival
Editor's Note: With this column, we introduce longtime journalist
Luca Ciarrocca
, who has written for such prestigious publications as
Il Mondo
,
Mondo Economico
and
Il Giornale
. Ciarrocca now serves as the deputy editor of
Milano Finanza
and
Mercati Finanziari
in Milan. His work will be appearing occasionally in
TheStreet.com
. As always, please let us know what you think at
commentarymail@thestreet.com.
MILAN -- The floor of the stock exchange here, the Piazza Affari, was electrified Friday by talk of a bid for
Telecom Italia
(TI)
, the sixth-largest telecommunications company in the world and the second-largest in Europe. And the suitor is none other than
Olivetti
, the former computer producer based in Ivrea, Italy.
Olivetti said its board will meet Sunday to discuss its interest in Telecom Italia. According to insiders at Piazza Affari, Olivetti Sunday will launch a tender offer for the former state telecom giant. In midafternoon trading Telecom Italia ADRs were up 6 5/16, or 6.3%, at 106 3/8, as reports of a probable bid began to hit the newswires.
The target price is rumored at 10 to 11 euros per Telecom Italia share, which would represent a 10%-15% premium to Telecom Italia's closing price in Milan today of 9.4 euros, a new high.
But where will Olivetti turn to finance such a rich bid? The most likely scenario, according to observers, is that Olivetti will sell its majority stakes in two operations (cellular phone company
Omnitel
and long-distance carrier
Infostrada
) to its German partner,
Mannesmann
.
That will do for a start, but the balance of the funding -- some 80% -- is expected to come from a pool of banks including
Chase Manhattan
and
Donaldson Lufkin & Jenrette
. Financial advisers for Olivetti will be
Mediobanca
and
Merrill Lynch
.
The question remains: What is the upside for Olivetti? Telecom Italia ADRs have risen 77% since their early October lows. Some observers say that Olivetti's owners, including a group of Italian industrialists who own a 13% stake and who are led by Roberto Colaninno, are interested in expanding their holdings.
Telecom Italia was privatized last year, though the government has retained a "golden share" representing a large voting interest. That is important because most observers think that only an Italian company such as Olivetti would receive the government's approval in a takeover. Possible suitors named in rumors earlier this week included
Bell Atlantic
(BEL)
and
MCI WorldCom
(WCOM)
, but these reports were subsequently denied.
Observers say it is reasonable to expect Telecom Italia to seek a higher price if and when Olivetti bids.
Luca Ciarrocca is the deputy editor of Milano Finanza and Mercati Finanziari in Milan. Ciarrocca was a financial news reporter for Il Giornale in New York for nine years, and previously worked in Milan for two weekly financial magazines: Il Mondo and Mondo Economico. At the time of publication he had no positions in the stocks named in this column, though holdings can change at any time.
