Telecom Italia currently sits at the bottom of a chain of six holding companies, a structure which makes it extremely difficult for the market to analyze its financial results. Telecom Italia’s chairman, Marco Tronchetti Provera, is known to want to simplify the ownership of Italy’s largest phone company, in an attempt to boost investor confidence.
The boards of both Olivetti and Telecom Italia are meeting to consider a reorganization that may include a merger with Olivetti SpA, a move that will almost certainly be opposed by the minority shareholders. The main concern for them is that if Telecom Italia were merged into Olivetti using market value, they would suffer a loss because Olivetti has 33.4bn euros ($36.8bn) in debt. This would be added on top of Telecom Italia’s debt of 18.1bn euros ($19.9bn). A merger between the two would mean Telecom Italia could service the debt directly with its own cash flow.
Minority shareholders have warned they may seek to block the proposed merger, and will consider legal action.
Both Olivetti and Telecom Italia have asked for their shares to be suspended, whilst both boards meet to examine eventual extraordinary operations. The combined market capitalization of both companies on the last day traded, was 38.8bn euros ($42.8bn).
Tronchetti Provera brought Olivetti in order to gain control of Telecom Italia back in 2001. Olivetti used to build office machines, but has since turned into an investment company, whose only source of revenue is the dividend and profit from its 55% stake in Telecom Italia.
Meanwhile, Telecom Italia is also considering selling its telephone directories and internet unit, Seat Pagine Gialle SpA, for as much as 8bn euros ($8.8bn).
Source: Computerwire
