Telecom Italia Strategy; 2001

BUSINESS WEEK ONLINE AUGUST 13, 2001

INTERNATIONAL BUSINESS

Tronchetti's Telecom Italia Coup

How Pirelli's chief took over Pirelli Chief Executive Marco Tronchetti Provera had been scouring global markets for months for the right deal. Having grossed $5.6 billion in cash from the sale of two technology units, he considered nabbing part of Lucent Technologies Inc.'s (LU ) fiber-optic business but passed it over as too pricey. Then in July, a tantalizing opportunity appeared in Tronchetti's own backyard: Telecom Italia (TI ). He had made a failed pitch for taking the state-owned company private in 1994 and missed again when a takeover battle for the telco erupted in 1999. This time, Tronchetti's timing was impeccable. Disgruntled investors and bankers who financed the $45 billion hostile takeover of Telecom Italia by Roberto Colaninno two years ago were threatening mutiny. It didn't take long for Milan's financial circles to leak news of Chief Executive Colaninno's frantic efforts to find fresh investors. Tronchetti's moment had arrived. On July 27, he made an irresistible friendly bid: a $6.4 billion buyout of a big stake in Olivetti, the holding company that controlled Telecom Italia. The offer represented an 80% premium on Olivetti's stock. The behind-the-scenes story of Tronchetti's coup reveals how deals in Europe's third-largest economy still depend more on old-world alliances than on the rough-and-tumble justice of open markets. Pirelli, together with ally Benetton and two banks, took control of an empire with a market value of $99 billion for only $6.4 billion, thanks to the complex chain of holding companies created by Colaninno. The 80% premium goes to the handful of investors who own 23% of Olivetti. And Telecom Italia's outside shareholders? They get nothing. LEAN AND SIMPLE. If there's a silver lining, it's that the old-style deal was clinched by a newstyle executive focused more on profits and innovation than power. Tronchetti, 54, the son of a Milanese industrialist, turned around the near-bankrupt tire and cable maker Pirelli in the early 1990s, then transformed it into one of Italy's few successful global technology players. "Pirelli is managed as a lean and simple company," says Gian Luca Braggiotti, a former Pirelli manager who now heads myCube, a Milan-based investment fund. Tronchetti's crowning success was the sale last year of Pirelli's 90% stake in its optical components business to Corning for $3.6 billion. But managing Telecom Italia will be a challenge of a different magnitude. It's lagging in new technologies, customer-unfriendly, and overstaffed. Together, Telecom Italia and Olivetti have $34 billion of debt, and Pirelli is taking on $2.7 billion of its own to finance the takeover. Meanwhile, analysts forecast net profit at Telecom Italia will decline by 14% this year, to $1.5 billion, as competition heats up. Tronchetti has already said he'll spin off Pirelli's truck tire and energy cable businesses for about $1.75 billion and focus on telecom. Nevertheless, investors drove Pirelli shares down 17%, to $2.25, the first trading day after the deal was announced.

But Tronchetti will have more room to maneuver than Colaninno. He used a company he controls as the vehicle for the takeover, and isn't dependent on a clutch of financial backers. Colaninno started to lose his grip in March, when markets were pounding the shares of Olivetti and Telecom Italia. Foiled in their expectations of a quick, speculative gain, both the Brescia-based investors and their banks--Chase Manhattan and Banca Antonveneta--were angry at Colaninno's repeated requests for capital increases and frightened by the sliding stock prices. "They had lost confidence," says a Milan banker. In early July, Tronchet-ti broached a buyout, but Colaninno refused. Near the same time, Banca Antonveneta approached the Benetton family, the Veneto-based clan that built a $5 billion industrial group out of a retail clothing business. The Benetton group's holdings include a stake in Blu, Italy's fourth-largest mobile phone operator. Benetton board member and financial head Gilberto Benetton offered Colaninno a capital injection in exchange for co-management of Telecom Italia, but investors feared a dilution of their stock and Colaninno didn't want to share control. The pressure kept mounting. Colaninno's own effort to restructure Olivetti's debt through a complex share conversion and buyback plan stalled. So a panicked Colaninno embarked on a frenzy of negotiations in mid-July with dozens of potential investors. Interested parties included Spanish power utility Endesa, media mogul Rupert Murdoch, merchant bank Mediobanca, Saudi Prince Alwaleed, and Spanish rival Telefonica, according to executives close to the deal. Endesa was ready to make an offer, insiders say, but when Colaninno's team quietly sought a green light from the government, which still holds a golden stake in Telecom Italia, the response from Rome was chilly. Catching word of Colaninno's effort, Tronchetti made his move. In late July, he offered the Brescia investors $3 per Olivetti share. They countered with $3.95 and talks broke off. Then, on Friday, July 27, halfway through a Telecom Italia board meeting in Milan, Colaninno's partner Emilio Gnutti walked out of the room to see Tronchetti several blocks away at Pirelli headquarters. Tronchetti upped the price for Olivetti shares to $3.65--80% above that day's share price--and the two men shook hands on the deal. Gnutti then dined with Colaninno to inform him that his investors wanted to accept the buyout. To work out a deal, Colaninno, investment bankers, industrial backers, and investors converged on Pirelli HQ on Sunday. Chaos reigned as Colaninno tried to impede the sale for three hours. Meanwhile, Spain's Telefonica bombarded Colaninno's investors on cell phones with a higher offer. "The air conditioning went out. Food was scarce, and no one slept that night--including Tronchetti," says one banker. Despite the prospect of richer offers from foreign bidders, the group preferred an all-Italian deal. "Many others were interested, but no one made written offers," says Ettore Lonati, an industrialist from Brescia and one of Colaninno's original backers. QUICK WORK. But Colaninno continued to delay, demanding a more lucrative golden handshake for a swift exit. Those close to the deal said his former allies agreed to pay him an extra $100 million dividend, plus $30 million more in bonus payments. On July 30 at 9 a.m., Colaninno resigned. A sleep-deprived Tronchetti faced analysts and the press as the chairmanin-waiting of Telecom Italia, pending a 30-day antitrust review by European Union officials. "We will present a financial restructuring and part of the industrial plan as soon as we have the green light," says Tronchetti. Those close to Tronchetti say he will work swiftly to address the debt, bolster investments in technology and innovation, and transform the sleepy culture of Telecom Italia into that of a globally competitive company. "He's decisive and transparent and doesn't compromise," says Gilberto Benetton, who took a 6% stake in Pirelli several years ago because he believed in

Tronchetti. If Tronchetti can turbocharge Telecom Italia and treat all shareholders fairly, he will go a long way toward changing Italy Inc.

BBC NEWS ONLINE

Monday, 30 July, 2001, 17:11 GMT 18:11 UK

Pirelli slammed for Telecom Italia deal

Markets worry that Pirelli may have paid too much for TI

Financial markets gave a decisive thumbs-down to tyre maker Pirelli's surprise takeover of Telecom Italia (TI) and Olivetti, its parent company. The Italian tyre and cable maker took over as the controlling shareholder of Olivetti over the weekend, also giving it effective control of TI, Europe's fifth-biggest telecoms company. But by the close of trading on Monday, Pirelli shares were down by over 16%, the stock's biggest-ever one-day drop, wiping more than 1bn euros (615m; $877m) off the company's value. Olivetti's shares dropped by almost as much. Analysts were almost unanimous in their condemnation of the deal, citing an over-high price, the lack of synergies between the firms, and the failure to communicate strategy adequately to shareholders. "Pirelli's move... is financially destructive," said stock market analyst Hugo Dixon of Breakingviews.com. "In one fell swoop, Marco Tronchetti Provera, Pirelli's chaiman, has cut the value of the [firm's] underlying assets by 30%." Complex deal Pirelli on Monday said it would sell off its tyre and cable businesses in parts to pay for the deal, cut Olivetti's debt and possibly merge it with TI to focus on the telecoms business.

The complex 7bn euro deal also gives Pirelli, backed by fashion retailer Benetton, control of TI's mobile phone unit TIM, Italy's largest mobile operator, telephone directories publisher Seat-Pagine Gialle, and Tin.it, one of Italy's leading internet service providers. "Telecom [Italia] is in a strong financial position. Everyone knows the debts are in Olivetti, but there are instruments for reducing Olivetti's debts," Mr Tronchetti Provera said.

Tronchetti Provera is smiling now

Pirelli said it would have a business plan ready for the Olivetti-Telecom Italia group by the end of this year. The deal was welcomed by the Italian Industry Minister Antonio Marzano on Sunday, who praised "the consolidation of the shareholder structure of Olivetti and Telecom Italia by an association of Italian entrepreneurs". The European Commission will now have to pass its judgement on the deal. Sale despite opposition Olivetti fell into Pirelli's hands after the company that held the controlling stake, Bell, was sold by its shareholders, despite opposition from Olivetti and TI's chief executive Roberto Colaninno. Under the deal, a specially created company in which Pirelli holds 60%, and the Benetton family's Edizione Holding holds 40%, bought control of Bell. It is expected that the holding company will be folded into Pirelli once the deal is cleared by the European Commission.

Colaninno: Likely to resign

Olivetti said on Sunday night that Mr Colaninno would resign and be replaced by Enrico Bondi, currently chief executive of agriculture and energy giant Montedison, which itself recently fell to a hostile takeover. 'Good deal' The takeover came just two years after Mr Colaninno, known as "the Accountant of Mantua", gained control of TI in what was at the time the world's biggest corporate takeover battle. Mr Colaninno said on Sunday he tried and failed to persuade fellow investors in Bell not to accept Pirelli's offer but praised Pirelli and the Benetton family for striking a "good deal". "The company stays Italian, and that, for me, is something to be proud of," he told the Italian press.

Bell grouped together dozens of northern Italian entrepreneurs who gambled on taking control of Telecom Italia under Mr Colaninno in 1999. BT trouble The deal could also spell trouble for British Telecom through its partnership with Benetton in the Italian mobile phone market. Benetton holds 40% of Italy's fourth largest mobile telephone operator Blu, which it may have to sell because it is a direct competitor of TIM. BT has announced its intention to sell its 20% stake in the company, the value of which would be cut if Benetton was forced by competition authorities to review its holding in Blu. TI is also the biggest private investor in Telekom Austria.

ECONOMIST
Pirelli buys Telecom Italia

Pirelli buys Telecom Italia

Aug 2nd 2001 From The Economist print edition

PIRELLI'S shareholders see nothing to cheer about. Shares in the Italian tyres and cables group lost over one-sixth of their value on July 30th, as the market said what it thought about the firm's big move into telecommunications, announced over the weekend. Flanked by the Benetton family's Edizione Holding, Pirelli has acquired a 27% stake in Olivetti, giving it effective control over the company that in turn pulls the strings at Telecom Italia, Italy's leading telecoms group.

Telecoms.com
01 November 2001

In Italy, baffled shareholders are trying to absorb the implications of Pirelli's complex, eight-layered takeover of Telecom Italia, effected in August and backed by the Benetton family. The financial restructuring that has come with it is now the main focus. Being less exposed to 3G than most of their primary competitors, neither Telecom Italia nor its wireless subsidiary, TIM, are particularly debt-ridden. However, their holding company Olivetti has a debt which now stands at 17.4bn. Chief executive Tronchetti Provera has been rather coy on the topic of asset sales, preferring to concentrate on the 4bn ($3.67bn) he raised in debt from the sale of an Olivetti convertible bond (along with some shares). Some analysts have suggested that a split-off of TIM could be in the pipeline, but that seems unlikely given Provera's avowal to focus on Latin America and other mobile interests in order to boost earnings.

Telecoms.com

Pirelli grabs telecom Italia

01 September 2001

How do you take over a company valued at 110bn with just 7bn? Ask Pirelli chief Marco Tronchetti Provera, whose audacious financial manoeuvrings have secured control of Telecom Italia. The opportunistic move prompted speculation that TI or Telecom Italia Mobile could become a target for Deutsche Telekom. DT confirmed its interest in a partnership with TIM, and it is worth noting that T-Mobil has not developed positions in markets where TIM has a presence. But DT has several acquisitions to digest first and a 68.8m debt mountain to tackle. Another suitor could be Telefonica. TI is labouring under the 18bn debt burden of its 55% stakeholder Olivetti, in which Pirelli, backed by Benetton, took a 23% controlling stake to close the deal. Now Tronchetti Provera has acknowledged that the ownership structure needs to be simplified and the question of Olivetti's debt addressed. Attention is focused on the prospect of a two- or even three-way merger between Pirelli, Olivetti and Telecom Italia.

2003
Telecoms.com

Shorts
01 October 2003

Pirelli tycoon Marco Tronchetti Provera, who runs Telecom Italia and its mobile arm Telecom Italia Mobile (TIM) has said he rules out any mergers with any other companies for TIM. "The phase of big mergers seems to me to be over. Now is the time for growth and investment in research and new technologies," he told Italy's Milano Finanza weekly.

2005
Telecoms.com

TI launches IPTV
01 July 2005

Telecom Italia is to increase competition in Italy's pay-TV market by launching a nationwide IPTV product in the autumn. It has launched a trial in four cities (Rome, Milan, Bologna and Palermo) and expects to add 21 more cities by the end of the year, bringing its potential market to four million homes. A cornerstone of its content offering will be live domestic league football as well as an on-demand offering of 600 movies. Partners include Microsoft, Alcatel and Pirelli Broadband.

www.finanznachrichten.de
12.05.2005 19:05

Pirelli says cable sale on track; to use part of proceeds on Telecom Italia shrs
MILAN (AFX) - Pirelli&C SpA (Nachrichten/Aktienkurs) chairman Marco Tronchetti Provera said the sale of its cable activities is on schedule and is expected to complete in a few weeks. Speaking in a conference call with analysts, he said Pirelli will use part of the proceeds from the sale to increase its stake in Telecom Italia SpA. (Nachrichten/Aktienkurs) He said the Telecom Italia shares could be acquired through direct purchases. Tronchetti said Pirelli can acquire directly up to 300 mln Telecom Italia shares, which would be held separately from the Telecom Italia investment held with partners via Pirelli's unit Olimpia SpA. Olimpia is Telecom Italia's largest shareholder with a 21.8 pct stake. Olimpia includes as shareholders the Benetton family plus Italian banks. Commenting on Pirelli's tyre activities, Tronchetti said the group should reach the results targets set for 2006 as early as 2005. Asked about price rises on tyres, he said he sees these offsetting higher raw material prices and the impact of the weaker dollar. During the call, Pirelli&C Real Estate SpA Carlo Puri Negri said he sees the unit's EBIT profit rising 15-20 pct this year, adding that this is in line with the company's 2003-2005 business plan. "The target of a 20-25 pct rise in EBIT per year was, and is, for 2003-2005. We are on track with what we said to the market," he said, adding that rises in 2003 and 2004 were above 20 pct.

2006
Telecoms.com Italian PM wants "details" on TI reorganisation
12 September 2006

Italian Prime Minister Romano Prodi said Tuesday that he was "surprised" by the scale of Telecom Italia's (TI) reorganisation, announced Monday, and warned that the government is seeking more details. According to reports in the Italian press, Prodi said the government wants to know "the details and motivation" of the deal. The reports suggest Prodi had discussed the reorganisation almost a fortnight ago with TI's chairman Marco Tronchetti Provera. Observers believe Provera did not reveal the full extent of the move during the conversation. It is understood that Prodi is not alone in his concern. Mario Lettieri, undersecretary at the economy ministry, is reported to have said he has reservations about the deal and its ramifications for the Italian economy. Yesterday, TI announced a major reorganisation to split its fixed-line and mobile businesses into two new companies. The reorganisation is designed, the company said, to help it sharpen its focus on broadband and media activities both at home and across Europe. Speculation has raged around whether the firm would, as part or the reorganisation, sell off of its mobile arm, TIM. On Sunday the Italian daily, Il Sole 24 Ore, said TI could raise Eur 35bn if it sold its mobile unit and Eur 6bn from its Brazilian arm. The sales, so the speculation goes, could ease the company's Eur 40bn debt.

Update: more details on TI reorganisation

14 September 2006

General Electric, Time Warner and Rupert Murdoch's News Corp. have all emerged as potential players in Telecom Italia's proposed spin off of its mobile operation. The news emerged Wednesday, when Prime Minister Romano Prodi's office released details of a meeting between Telecom Italia head Marco Tronchetti Provera and Prodi. The Italian government is reportedly outraged over the plans, which could see the mobile operator fall into the hands of foreign investors. Prodi is understood to have been unaware of Tronchetti's plans to spin off Telecom Italia Mobile (TIM), in a move that speculation suggests could precede the sale of part or all of TIM for around Eur35bn. The reorganisation is designed, the company said, to help it sharpen its focus on broadband and media activities both at home and across Europe. But in light of the news, Thomas Husson, analyst with Jupiter Research, questions whether TIM was a large enough player to compete in a consolidating industry anyway. TIM has more than 29 million lines in Italy, giving it 40 per cent market share and is number two in Brazil with 22 million lines. "But after several significant acquisitions [in the market, such as O2 and Amena], it sounds like it now has a lower profile than China Unicom, Vodafone, Telefonica, TeliaSonera, T-Mobile or Orange to compete at an international level," Husson said.

The Times September 14, 2006

The man who saved struggling Pirelli is driven into a corner

BY RICHARD OWEN

The decision to sell off Italia Telecom Mobile is the talk of the business set in Rome. Our correspondent reports on fears over Marco Tronchetti Provera's plans
HAS Marco Tronchetti Provera, head of Pirelli and Telecom Italia, finally lost his golden touch? Tall, tanned, crinkly haired and stylish, with apparently effortless business skills and connections, he has embodied the discreet but ruthless charm of the new Italian industrial class for two decades. He is a regular feature of the gossip columns as well as the business pages, sailing his 30-metre yacht, Kauris III, being seen at La Scala premieres or his Portofino villa with his glamorous, Tunisian-born wife of five years, the model Afef Jnifen. Unlike old-style managers from Italian family dynasties, it is said, he combines a patrician manner with a competitive, even combative, modern approach. Yesterday, after the fallout from his remarkable U-turn over the reorganisation of Telecom Italia, the headlines told a different story: falls on the Milan stock exchange, the threat of strikes and industrial turmoil and glacial anger from Romano Prodi, the Prime Minister, who, before setting off on a trip to China, commented bitterly that Signor Tonchetti Provera had kept him in the dark. Now nearly 60, Signor Tronchetti Provera comes from a well-established Milanese family that made its wealth from Sogemar, a maritime transport company. At first he worked in the family company after graduating in economics from Bocconi University in Milan, but then, at 38, he joined Pirelli in 1986 to work for his father-in-law. Leapfrogging more established executives, in 1992 he was named chief executive and general manager of finance and administration at Pirelli, succeding Leopoldo Pirellis son, Alberto, and then boldly expanding the tyre giants operations to include fibre-optics and property. When Pirelli sold its optical components division to Corning in 2001 for $3.5 billion (1.87 billion), Pirellis senior management awarded itself a sizeable cut, with an estimated $300 million going to Signor Tronchetti Provera himself. Just a few months later he and the Benetton family took over Telecom Italia by buying a 27 per cent stake in Olivetti. For some, all this is a classic example of the maxim that the son-in-law also rises. After all, he had married Cecilia Pirelli, daughter of the then Pirelli

chairman, Leopoldo Pirelli, in 1978, which must have helped. No, his friends and admirers say: his family and the Pirellis were part of the same Milan social set, the salotto buono, and the alliance was a natural one. Furthermore, when he and Cecilia Pirelli divorced (they have three children), he remained at the Pirelli helm. Few question that Signor Tronchetti Proveras business acumen saved the ailing company: when he took over, Pirelli was deeply in debt because of the declining tyre market and a series of mishandled acquisition attempts. Some say that it was close to bankruptcy. Signor Tronchetti Provera took drastic action, selling off redundant divisions, cutting jobs, investing in production-line robots and launching an advertising campaign fronted by the actress Sharon Stone. Above all, he diversified as other top Italian companies such as Fiat and Benetton have also had to do noting that Italian industry had to adapt in an era of globalisation and competition from Asia, which meant that we cannot simply do business in Europe as usual . . . we have to fight as if we were starting from scratch. In its core business, Pirelli developed high-performance intelligent tyres. Coupled with streamlining and the move into fibre-optics the key to the internet the shake-up restored Pirelli to profitability. The question is whether Signor Tronchetti Provera over-reached himself with the acquisition of Telecom Italia, perhaps at an inflated price. At the time the deal seemed logical, if not inevitable, given Pirellis successful move into fibreoptics. He and the Benettons, Signor Tronchetti Provera said, were natural partners: We both go straight to the point and dont waste time, and were both interested in creating value . . . my goal is to regenerate confidence in the company and self-confidence in the people who work for it. Using the same techniques as at Pirelli, Signor Tronchetti Provera sold assets, streamlined the company by cutting jobs and by 2003 had turned an annual loss of $1.7 billion into a profit. Then he embarked on a convergence strategy by merging fixed-line, mobile and internet. That is where he has come unstuck with the announcement, after much rumour and denial, of the surprise plan to offload Italia Telecom Mobile (TIM). This has aroused fears that, like other mobile operators in Italy, the company will end up in foreign hands. In a sense, he had no choice: last year Telecom Italia posted losses of 50 million (34 million). Signor Tronchetti Provera may argue that European Union regulations have made life difficult for telecoms operators over convergence plans and that his strategy had to be radically re-thought so that he could refocus on broadband and media services. Telecom Italia, he says, must be transformed into a media company because

that is where the future lies. In the end, he may be proved right. Signor Tronchetti Provera, the Left-leaning La Repubblica said, should have kept the Government better informed as Gianni Agnelli [of Fiat] was always careful to do but market forces must be allowed to take their course.

Face value

Ecco il conto, presidente

Sep 14th 2006 From The Economist print edition

Marco Tronchetti Provera took control of Telecom Italia five years ago. Now the bill is due

Reuters THREE weeks of sailing in the Mediterranean, even during a poor summer, does wonders for a tan. And Marco Tronchetti Provera's wellbronzed face bears the evidence of time spent at the helm of his 30metre yacht, working up its 16-man crew and competing in regattas. I have the physique but less time than I would like. Alas, in the future, when I may have more time, I may not have the physique, he says.

His favourite pursuit was badly disrupted five summers ago when, in July 2001, as chairman of Pirelli, a tyre company he continues to head, Mr Tronchetti Provera did a deal to win control of Telecom Italia, Italy's former telecoms monopoly, and take over its chairmanship. To do so, he used Pirelli's cash pile of 4.4 billion ($3.9 billion), raised from the sale in 2000 of its fibre-optics business to Corning and Cisco Systems, two American firms. He also borrowed heavilyaround 3 billion of loans were renegotiated last yearand took two banks as shareholders in Olimpia, the holding company used to buy the stake in Telecom Italia. But they imposed the condition that Pirelli would have to buy their shares back for at least the original purchase price. The banks renewed this arrangement after three years for a further two, and the bill is now due. Although Telecom Italia's shares are now worth 2.29, they cost 4.17 when Olimpia bought its stake, so Pirelli must pay out almost 1.2 billion next month. In July it paid almost 500m to buy back the shares of a company called Hopa that had bought into Olimpia in 2003. To meet these commitments Mr Tronchetti Provera has had to dismember his business empire. Pirelli sold its cables division for 1.3 billion in June last year to concentrate on property and tyres. In June it sold a large stake in Internazionale, a leading Milanese soccer team of which Mr Tronchetti Provera is an enthusiastic fan, and in July it sold 39% of its tyre division to a group of banks to raise 740m. It has other assets on the block. Since shortly before Pirelli made its investment in Telecom Italia, the price of Pirelli's shares has fallen from 3.10 to 0.74. This is the background to the dramatic U-turn that Mr Tronchetti Provera announced this week at Telecom Italia, which is based across the street from Pirelli's headquarters in Milan. Although he has sold assets, raising 15.4 billion since 2001 to pay down debt, Telecom Italia still has debts of 41.3 billion, almost equal to its stockmarket value. On September 11th Mr Tronchetti Provera announced that the company would split its mobile-phone division, Telecom Italia Mobile (TIM), and its fixed-line network, into two new holding companies. This would, he insisted, enable Telecom Italia to focus on its broadband internet business and, in particular, the delivery of television services over broadband connectionsa new market into which Telecom Italia is advancing, along with other incumbent telecoms operators around the world. On September 7th Mr Tronchetti Provera met Rupert Murdoch, the boss of News Corporation, to discuss a partnership. Thanks to

broadband, telecoms and the media are converging and that is where we are moving, says Mr Tronchetti Provera. The result, so far, is a small deal to supply films from News Corp's Twentieth Century Fox over Telecom Italia's wires. But rumours abound that some form of closer tie-upsuch as a merger between Telecom Italia and Sky Italia, News Corp's satellite-TV unitmight also be on the cards. Either way, Mr Tronchetti Provera hopes that positioning Telecom Italia as a media company rather than a telecoms firm will boost its share price, since media firms tend to trade at higher multiples of their earnings. If that fails, separating Telecom Italia's fixed and mobile networks into separate divisions provides a fallback plan. It is not necessarily the prelude to a sale, Mr Tronchetti Provera insists, though he has not ruled out that possibility, and it would make a sale much easier. He seems, in particular, to be inviting bids for TIM, which might fetch around 35 billion ($44.5 billion). Telecom Italia would reduce its debt, and Pirelli's proceeds from the sale would cover buying the two banks out of Olimpia. But the sale of TIM, Italy's largest mobile operator, would be problematic. Mr Tronchetti Provera has long been one of Europe's leading proponents of convergencethe idea that telecoms firms should tightly integrate their fixed, mobile and broadband operations. Selling TIM, which was fully integrated into Telecom Italia only last year, would mark a complete reversal of this policy. The price would stretch both private-equity buyers and debt-laden rival operators. Worst of all, government ministers have condemned the plan, and one even called for a change of management. The unions threatened to strike.

Expensive hobbies
Mr Tronchetti Provera won accolades for the smart way he steered Pirelli during the 1990s. But his handling of the tyre group over the past five years would have provoked a mutiny by shareholders in most listed companies. Yet he is still in command. That is due partly to the chain of nested stakes that grants his family voting rights of 25.4%, despite holding less than 8% of Pirelli's shares. Friendships and alliances of cross-shareholdings, which often trump economic factors in Italy, have also helped him to keep his job. Taking control of Telecom Italia proved to be a bad call. Mischievous Milanese insiders say that Mr Tronchetti Provera, whose family in effect owns less than 1% of Telecom Italia, wanted to head the telecoms

giant because it offered more power and prestige than running Pirelli. He insists, however, that it was his duty as an industrialist to invest the gains from the sales to Corning and Cisco in an industrial venture, though he says he would have bought a bank had he guessed where Telecom Italia's shares were heading. The value has halved, he says. I know because I have lost most.

The Times September 16, 2006

Pressure on Prodi grows as chairman of Telecom Italia quits

FROM RICHARD OWEN IN ROME

IN A move that convulsed the Italian political and business worlds, Marco Tronchetti Provera last night resigned as chairman of Telecom Italia at an extraordinary meeting of the board in Milan. The drama of the resignation, which followed a clash with the Government over the future of the company, threatened to engulf Romano Prodi, the Prime Minister, who is on a political and trade trip to China but is under pressure to appear before Parliament to answer to the nation for a crisis that has shaken Italy. Telecom Italia said that Signor Tronchetti Provera stepped down to depersonalise and defuse the situation. He will be replaced by Guido Rossi, the veteran former head of Italys stock market regulator, who was also appointed emergency administrator of the Italian football federation FIGC after the football world was beset by corruption and match-fixing allegations. La Repubblica was last night predicting political repercussions after the revelation by Angelo Rovati, a senior adviser to Signor Prodi, that he had discussed the break-up of Telecom Italia with Signor Tronchetti Provera as early as September 6. This triggered speculation that Signor Prodi knew more about the Telecom Italia plans than he has admitted. Publicly Signor Prodi has complained that he was kept in the dark about Signor Tronchetti Proveras plans to sell off Telecom Italias mobile phone arm, Telecom Italia Mobile (TIM). The move has aroused fears that TIM will end up in foreign hands. But Signor Rovati sent a secret report to Signor Tronchetti Provera suggesting that the state should find a formula to ensure state control of the network. When this became public Signor Rovati said that he had acted without Signor Prodis knowledge. Paolo Gentiloni, the Telecommunications Minister, said yesterday: The Government has never discussed and does not intend to carry out interventions of this kind.

The problem is that Telecom Italia thinks it can resolve its debt problem by selling TIM. The Government does not like this hypothesis, he said, referring to the companys 40 billion (27 billion) of debt, roughly equivalent to its market capitalisation. Earlier this week Signor Prodi said he was disconcerted and concerned by the move to spin off TIM. But some Centre Right opposition MPs called for his resignation. Asked in China if he would appear before Parliament the Prime Minister responded: What are we all mad? There are no new elements to the case. Lets leave aside the rumours, of which there have been too many, and wait for the facts to talk. TIM was fully integrated into Telecom Italia only last year. Signor Tronchetti Provera, who also heads Pirelli, and is credited with having turned both Pirelli and Telecom Italia around, has been a strong supporter of convergence the theory that telecom groups should integrate mobile, fixed and broadband activities. Signor Tronchetti Provera, who took over Telecom Italia in 2001, denied that offers had already been made for TIM, saying that we only want to manage our assets in the best possible way and be more flexible . . . We are not in contact with anyone. Telecom Italia was privatised in 1997 but the Government still holds veto powers over the ex- monopolys corporate decisions. Signor Prodi reiterated that he knew nothing of the plan to separate off TIM and said Signor Tronchetti Provera had informed him of only a possible partnership with News Corporation, parent company of The Times.

Telecoms.com
Bushido-style drama grips Italy
18 September 2006

In a week that saw Italy's government criticised for interfering with private industry, falling on one's sword seems to be catching on... Political drama in Italy has always been worth getting front seats for and last week's entertainment was no exception. Culminating in Telecom Italia's boss, Marco Tronchetti Provera opting for Bushido-style sacrifice by falling on his sword, telecoms suddenly got very interesting. It's an heroic end for the firm's leader of four years and has thrown up the spectre of a full-scale investigation into the proposed sell-off of TI's mobile arm. Italy's new-ish PM, Romano Prodi's much publicised debacle over the Telecom Italia reorganisation has horrified some and delighted others, while ex-PM Berlusconi's old guard weighed in on Prodi's apparent foolishness. Last Wednesday, Renato Brunetta led the assault on Prodi, calling him an "interfering busybody" after Prodi's government distributed a statement detailing private discussions between the Prime Minister and Tronchetti. Not surprising really, given Brunetta is the former economic advisor to the ever-bronzed Berlusconi.

Ulterior motive is such an ugly phenomenon. Before Wednesday's events unfolded, analysts could not believe TI's (then) chief had - in the space of a single day - dumped plans that have taken years to hatch, effectively abandoning a telecoms strategy that is in-line with other European players. Just two years after the firm had bought back its mobile arm, it looked like another sell-off was imminent and that delivering content was the new strategy. But such strategies usually make sense as soon as they are revealed. Unveiling a content delivery deal with Rupert Murdoch's much maligned mouthpiece, Fox, is hardly a stroke of genius. Selling off one of Europe's strongest performing mobile companies, that is a market leader with great brand recognition and a solid reputation for service and reliability... now that's something completely different. Gartner analyst, Monica Basso, could hardly disguise her consternation having been present at the now infamous press conference where the premier expressed "surprise" at the full-extent of Tronchetti's plans. "In the interview today" said Basso, "Prodi said he had a very long conversation a week ago (with Tronchetti) and that they discussed reorganisation but there was no mention of such a huge reorganisation. "It's almost unbelievable that they will sell off TIM just two years after buying it back. Indeed. Basso spoke at length about the plans and the vision of convergence Telecom Italia had been championing for at least two years. It seems, according to Basso, that "convergence is no longer something they believe in or see as crucial to their future". Prodi has made it perfectly clear that he disagrees, arguing there is no justification for such a deal now. And who can blame him? The industry's main focus right now is bringing together the disparate strengths and weaknesses of fixed and mobile telecommunications. FMC, convergence, call it what you will, European telcos are getting ready and the road is already paved. So who is right? Well, according to the analysts, Tronchetti needs his head examined. While the revelation of sensitive business information by Prodi will reverberate through Italian politics for years - probably - one has to acknowledge that his understanding of the telecoms market today, seems a heck of a lot sharper than Tronchetti's. His plan is akin to Churchill selling off his Spitfire divisions right before the Battle of Britain. Marco Marini at industry analyst Ovum, said it is far too early for TI to be selling off TIM and questions whether the reasoning is entirely strategic. "I wonder if it is more to do with financial considerations," Marini said on Tuesday. "This move has alarmed everyone because it goes against the previous considerations put forward by TI. It's a complete turn-around from the original strategy." Various reports and analysis suggest members of Prodi's delicate coalition are against the sale of TIM, fearing it could have a negative impact on the Italian economy if it is sold and, potentially more damaging, cedes control of telecoms assets to foreigners. Interestingly it is the leftovers of Berlusconi's gang who are doing the most complaining. Then Basso shared this bombshell with me: "The major shareholder of Telecom Italia is Olimpia (17 per cent of TI). Olimpia is a holding company owned by Pirelli (70 per cent), Benetton (20 per cent) and two Italian Banks (Banca Intesa and Unicredit - owning 4.7 per cent each). The interesting thing is that by October 4, Banca Intesa and Unicredito will exit from Olimpia and give back their quotes. "Pirelli must buy the quotes if it cannot find someone else to buy them instead. If Pirelli has to buy, it will have also have to consolidate Olimpia's debt (Eur 41.3bn) to its balance sheet." Basso conjectures that Pirelli cannot allow this to happen and explains why it would need to get rid of the debt now. In other words sell off TIM to protect Pirelli. But today is Monday and the weekend saw a new face take the helm at Telecom Italia in the form of Guido Rossi.

Rossi has been chairman of TI before when he oversaw Telecom Italia's privatisation in 1997. He fell on his own sword a few months later after a boardroom clash over how to manage the company. Today also saw another senior political figure "do the honourable thing" as Angelo Rovati, economic advisor to Prodi, announced his resignation after being criticised for having proposed the partial nationalisation of Telecom Italia's fixed-line network. I'm not sure Bushido is as popular in Italy as it was during the feudal Japanese epoch but at the rate at which Italian executives are hurling themselves at sharp pointy things, it could well be making a European comeback. Have a good week

Telcoms.com

Italian drama as Tronchetti quits, Rossi takes over

18 September 2006

The chairman of Telecom Italia, Marco Tronchetti Provera on Friday night quit the company as the row between the company and the Italian government reached breaking point. Following an extraordinary board meeting in Milan on Friday night the company announced that Tronchetti had quit. He took over the company in 2001 and remains the company's biggest shareholder. Soon after the resignation, Guido Rossi, the lawyer who led the recent inquiry into corruption in Italian football, assumed the chairmanship. By this morning (Monday) Rossi was already looking to calm TI's investors by assuring them the is 'financially and technologically strong'. In the Italian daily 'La Stampa' he said the company was strong enough to get through the past week's drama. At the same time Angelo Rovati, an economic advisor to PM Prodi, announced his resignation. Rovati was heavily criticised for having proposed the partial nationalisation of Telecom Italia fixed-line network. The Italian press blamed Rovati - among others - last week for making public details of the proposed sell-off of TIM and a private conversation between Prodi and TI's (then) chairman, Tronchetti. Tronchetti's departure underlined tension between the government as he left accusing Prodi and his team of interference.

Pirelli takes 80% of Telecom Italia

05 October 2006

Italian tyre manufacturer Pirelli paid out Eur1.17bn (788m) on Wednesday for two 4.77 per cent stakes in Italian holding firm Olimpia, which controls Telecom Italia. Pirelli acquired the holdings under previous option agreements made with Banca Intesa and Unicredito Italiano. Pirelli's stake in Olimpia now rises to 80 per cent, with the remaining 20 per cent held by Benetton. But Pirelli is now expected to come under pressure to consolidate Olimpia's debt into its own balance sheet a condition which analysts believe may dramatically influence a decision to sell off mobile unit TIM. Speaking with telecoms.com recently, Gartner analyst, Monica Basso forecast that Pirelli would have to buy up the quotes of Banca Intesa and Unicredito Italiano if it could not find someone else to buy them instead. "If Pirelli has to buy, it will have also have to consolidate Olimpia's debt (Eur 41.3bn) to its balance sheet." Basso conjectures that Pirelli cannot allow this to happen and explains why it would need to get rid of the debt now. In other words sell off TIM to protect Pirelli. Earlier this week the Italian operator issued a statement denying reports that Italian bankers were plotting to step in and save Telecom Italia from falling into foreign hands. On Tuesday, a reported 80 per cent of the company's 63,000 employees took to the streets to protest against proposals to spin off TIM as a separate entity. A move many see as an indication that the unit is to be put up for sale.