Telecom Italia Bolsters Defenses Against Olivetti Bid

Strategic Insights -

Telecom Italia has agreed to pay €22.9bn in cash for a 40% stake in its cellular unit, Telecom Italia Mobile (TIM), in an effort to bolster its defenses against Olivetti's €52.6bn hostile bid. The move is expected to force Olivetti to raise its proposed €10 a share offer, which is widely considered too low to win over Telecom Italia's shareholders. The acquisition will increase Telecom Italia's debt from around €9bn to €31bn, tripling its debt and raising its ratio of indebtedness to gross operating margin from 0.7% to 2.6%.

Key Takeaways:

  • Telecom Italia will pay €22.9bn in cash for a 40% stake in TIM, representing a premium of 17.4% over Friday's closing prices for common voting shares and 8.6% for non-voting savings shares.
  • The acquisition will more than triple Telecom Italia's debt from around €9bn to €31bn, increasing its ratio of indebtedness to gross operating margin from 0.7% to 2.6%.
  • Olivetti has secured total financing commitments of €28bn for its takeover attempt, of which €22.5bn is required to finance the bid at €10 a share.
  • The share exchange offer for TIM was opposed by shareholders who argued it was excessively dilutive of Telecom Italia investors.
  • A meeting of Telecom Italia shareholders is scheduled for April 10 to approve its defensive strategy, and another meeting will be held before the end of the month to approve the cash offer for the rest of TIM.

Statistics:

  • €22.9bn: the amount Telecom Italia will pay in cash for a 40% stake in TIM
  • €31bn: the expected increase in Telecom Italia's debt following the acquisition
  • 17.4%: the premium paid for common voting shares of TIM
  • 8.6%: the premium paid for non-voting savings shares of TIM
  • €28bn: the total financing commitments secured by Olivetti for its takeover attempt
  • €22.5bn: the amount required to finance the bid at €10 a share
  • 0.7%: the current ratio of indebtedness to gross operating margin for Telecom Italia
  • 2.6%: the expected ratio of indebtedness to gross operating margin following the acquisition
  • April 10: the date scheduled for the meeting of Telecom Italia shareholders to approve its defensive strategy

Sources:

  • "Telecom Italia agrees to pay €22.9bn for TIM stake". Financial Times Limited. 1999.
  • Copyright Financial Times Limited 1999. All Rights Reserved.