Telecom Italia's U-Turn: A [Euro]23bn Bid to Defend Against Olivetti

Telecom Italia's shareholders had been pushing for a bold move to counter Olivetti's hostile bid, and Chief Executive Franco Bernabe has finally delivered. The company will make a [Euro]23bn cash bid for the minorities in its cellular subsidiary, Telecom Italia Mobile, in a move that will boost its balance sheet but also increase its net debt to around [Euro]38bn. This decision marks a significant shift in strategy for Bernabe, who had previously criticized Olivetti for adopting excessive leverage.

Key Takeaways:

Telecom Italia will make a [Euro]23bn cash bid for the minorities in its cellular subsidiary, Telecom Italia Mobile, to defend against Olivetti's hostile bid.
The move will gear up Telecom's balance sheet, taking net debt to around [Euro]38bn.
The bid will incur goodwill of around [Euro]20bn, which will be amortized and affect reported earnings and dividends.
Big telecom investors may be willing to look past accounting numbers at underlying cash flow, but retail investors in Bologna may have a different view.
The move marks a U-turn for Chief Executive Franco Bernabe, who previously criticized Olivetti's use of excessive leverage.
Telecom Italia will have to sell the scheme to retail investors, who may be skeptical of the deal.
Olivetti must now increase its bid or walk away from the battlefield in its pursuit of Telecom Italia.

Statistics:

[Euro]23bn: The cash amount of the bid for the minorities in Telecom Italia Mobile.
[Euro]38bn: The expected net debt for Telecom Italia after the bid.
[Euro]20bn: The goodwill that will be incurred by Telecom Italia as a result of the bid.
1999: The year in which the copyright for this article was registered by Financial Times Limited.

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