Just when Telecom Italia Spa seemed to have no defense left to ward off the hostile takeover bid from rival Italian telecom operator Olivetti Spa, its seemingly hopeless plea for a white knight to save the day was answered by Deutsche Telekom.
The German operator’s $82 billion stock offer not only may save Telecom Italia from almost certain defeat, but could thwart what would have been Europe’s largest hostile takeover by instead becoming the world’s largest corporate merger.
Telecom Italia described the merger as a one of equals that would create the world’s second-largest telecom group, with a combined market value of about $180 billion.
Under the terms of the agreement, a new company would be formed to control both entities-one share of which would be exchanged for one share of Deutsche Telekom stock, three shares of Telecom Italia common stock, and 5.6 shares of Telecom Italia non-voting stock. Certain thresholds are placed on this exchange, but it basically raises the value of Telecom Italia shares to about 12.03 euros each, which beats Olivetti’s most recent bid of 11.5 euros.
While Telecom Italia’s board of directors have approved the proposal, stockholders now must vote in favor as well for it to proceed. Telecom Italia’s first defense measure-a three-tiered proposal that among other things included merging with mobile subsidiary Telecom Italia Mobile-was rejected by stockholders earlier. The plan required the approval of at least 30 percent of the company’s stockholders, but only 22 percent showed up at the meeting to vote.
The proposal to merge with Deutsche Telekom must meet the same requirements, and analysts said the bid contains some potentially deal-killing concerns. Both companies are former state-run monopolies that took a beating during Europe’s telecom deregulation campaign. Essentially, Telecom Italia shareholders need to decide whether they want to own Deutsche Telekom stock.
Deutsche Telekom would own the majority of the new company-as much as 60 percent-but may agree to lower its voting share to ease Italian concerns of a foreign operator controlling its telecom system. In fact, the German government had to promise it would not use its voting stake in Deutsche Telekom to control the combined entity before Telecom Italia’s board would even consider the merger. Still, the German government would own about 40 percent of Deutsche Telekom following the merger.
The combined company would be the second-largest phone company in the world, just behind Japan’s Nippon Telegraph and Telephone Corp. Telecom Italia Chief Executive Officer Franco Bernabe and Deutsche Telekom CEO Ron Sommer are said to be placing the success of the combined companies in the hands of their combined cellular operations, as well as Internet growth and expansion into new markets-including the United States. Deutsche Telekom owns mobile operator T-Mobil, and has been rumored to be considering a bid for Sprint Corp.
However, the most immediate effect will be on the European wireless market. Italy and Germany represent Europe’s largest cellular markets, and both Deutsche Telekom and Telecom Italia own the majority stake in their respective country’s largest operator.
This is perhaps why France Telecom SA is not too excited about the merger prospect. France Telecom is Deutsche Telekom’s partner in the Global One venture, along with Sprint, as well as an owner in the new Italian cellular operator Wind Spa.
“The proposed takeover of Telecom Italia by Deutsche Telekom … is a clear violation of the undertakings between France Telecom and Deutsche Telekom,” read a release issued by France Telecom shortly after the announcement. “France Telecom deplores this behavior and will undertake whatever action is appropriate to protect its rights and the interests of its shareholders.”
And while this is no doubt the largest telecom merger of its kind in Europe, analysts say it could make further worldwide telecom consolidation a necessity in order to compete.
British newspapers last week said Deutsche Telekom may be considering a bid for One2One, a small mobile operator in Great Britain put up for sale last month by owners Cable & Wireless plc and MediaOne Group. However, the pending merger with Telecom Italia cause many to doubt the seriousness of Deutsche Telekom’s interest.
News reports also named Mannesmann as another potential bidder.
Various news services contributed to this report.
