Telecom Italia Strategy

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Telecom Italia Strategy

2001

BUSINESS WEEK ONLINE

AUGUST 13 2001

INTERNATIONAL BUSINESS

Tronchettis Telecom Italia Coup

How Pirellis chief took over

Pirelli Chief Executive Marco Tronchetti Provera had been scouring global markets for months for

the right deal Having grossed $56 billion in cash from the sale of two technology units heconsidered nabbing part of Lucent Technologies Incs (LU ) fiber-optic business but passed itover as too pricey Then in July a tantalizing opportunity appeared in Tronchettis own backyardTelecom Italia (TI ) He had made a failed pitch for taking the state-owned company private in1994 and missed again when a takeover battle for the telco erupted in 1999 This timeTronchettis timing was impeccable

Disgruntled investors and bankers who financed the $45 billion hostile takeover of Telecom Italiaby Roberto Colaninno two years ago were threatening mutiny It didnt take long for Milansfinancial circles to leak news of Chief Executive Colaninnos frantic efforts to find fresh investorsTronchettis moment had arrived On July 27 he made an irresistible friendly bid a $64 billionbuyout of a big stake in Olivetti the holding company that controlled Telecom Italia The offer represented an 80 premium on Olivettis stock

The behind-the-scenes story of Tronchettis coup reveals how deals in Europes third-largesteconomy still depend more on old-world alliances than on the rough-and-tumble justice of openmarkets Pirelli together with ally Benetton and two banks took control of an empire with amarket value of $99 billion for only $64 billion thanks to the complex chain of holding companiescreated by Colaninno The 80 premium goes to the handful of investors who own 23 of Olivetti And Telecom Italias outside shareholders They get nothing

LEAN AND SIMPLE If theres a silver lining its that the old-style deal was clinched by a new-style executive focused more on profits and innovation than power Tronchetti 54 the son of aMilanese industrialist turned around the near-bankrupt tire and cable maker Pirelli in the early1990s then transformed it into one of Italys few successful global technology players Pirelli ismanaged as a lean and simple company says Gian Luca Braggiotti a former Pirelli manager who now heads myCube a Milan-based investment fund Tronchettis crowning success was thesale last year of Pirellis 90 stake in its optical components business to Corning for $36 billion

But managing Telecom Italia will be a challenge of a different magnitude Its lagging in newtechnologies customer-unfriendly and overstaffed Together Telecom Italia and Olivetti have$34 billion of debt and Pirelli is taking on $27 billion of its own to finance the takeoverMeanwhile analysts forecast net profit at Telecom Italia will decline by 14 this year to $15billion as competition heats up Tronchetti has already said hell spin off Pirellis truck tire andenergy cable businesses for about $175 billion and focus on telecom Nevertheless investorsdrove Pirelli shares down 17 to $225 the first trading day after the deal was announced



But Tronchetti will have more room to maneuver than Colaninno He used a company he controlsas the vehicle for the takeover and isnt dependent on a clutch of financial backers Colaninnostarted to lose his grip in March when markets were pounding the shares of Olivetti and TelecomItalia Foiled in their expectations of a quick speculative gain both the Brescia-based investorsand their banks--Chase Manhattan and Banca Antonveneta--were angry at Colaninnos repeatedrequests for capital increases and frightened by the sliding stock prices They had lostconfidence says a Milan banker

In early July Tronchet-ti broached a buyout but Colaninno refused Near the same time BancaAntonveneta approached the Benetton family the Veneto-based clan that built a $5 billionindustrial group out of a retail clothing business The Benetton groups holdings include a stake inBlu Italys fourth-largest mobile phone operator Benetton board member and financial headGilberto Benetton offered Colaninno a capital injection in exchange for co-management of Telecom Italia but investors feared a dilution of their stock and Colaninno didnt want to sharecontrol

The pressure kept mounting Colaninnos own effort to restructure Olivettis debt through acomplex share conversion and buyback plan stalled So a panicked Colaninno embarked on afrenzy of negotiations in mid-July with dozens of potential investors Interested parties included

Spanish power utility Endesa media mogul Rupert Murdoch merchant bank Mediobanca SaudiPrince Alwaleed and Spanish rival Telefonica according to executives close to the deal Endesawas ready to make an offer insiders say but when Colaninnos team quietly sought a green lightfrom the government which still holds a golden stake in Telecom Italia the response from Romewas chilly

Catching word of Colaninnos effort Tronchetti made his move In late July he offered theBrescia investors $3 per Olivetti share They countered with $395 and talks broke off Then onFriday July 27 halfway through a Telecom Italia board meeting in Milan Colaninnos partner Emilio Gnutti walked out of the room to see Tronchetti several blocks away at Pirelliheadquarters Tronchetti upped the price for Olivetti shares to $365--80 above that days shareprice--and the two men shook hands on the deal Gnutti then dined with Colaninno to inform himthat his investors wanted to accept the buyout

To work out a deal Colaninno investment bankers industrial backers and investors convergedon Pirelli HQ on Sunday Chaos reigned as Colaninno tried to impede the sale for three hoursMeanwhile Spains Telefonica bombarded Colaninnos investors on cell phones with a higher offer The air conditioning went out Food was scarce and no one slept that night--includingTronchetti says one banker

Despite the prospect of richer offers from foreign bidders the group preferred an all-Italian dealMany others were interested but no one made written offers says Ettore Lonati an industrialistfrom Brescia and one of Colaninnos original backers

QUICK WORK But Colaninno continued to delay demanding a more lucrative goldenhandshake 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 amColaninno resigned A sleep-deprived Tronchetti faced analysts and the press as the chairman-in-waiting of Telecom Italia pending a 30-day antitrust review by European Union officials Wewill present a financial restructuring and part of the industrial plan as soon as we have the greenlight says Tronchetti

Those close to Tronchetti say he will work swiftly to address the debt bolster investments intechnology and innovation and transform the sleepy culture of Telecom Italia into that of aglobally competitive company Hes decisive and transparent and doesnt compromise saysGilberto 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 goa long way toward changing Italy Inc

BBC NEWS ONLINE

Monday 30 July 2001 1711 GMT 1811 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 Pirellis 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 Europes fifth-biggesttelecoms company

But by the close of trading on Monday Pirelli shares were down by over 16 thestocks biggest-ever one-day drop wiping more than 1bn euros (pound615m $877m) off

the companys value

Olivettis shares dropped by almost as much

Analysts were almost unanimous in their condemnation of the deal citing anover-high price the lack of synergies between the firms and the failure to

communicate strategy adequately to shareholders

Pirellis move is financially destructive said stock market analyst Hugo Dixon of

Breakingviewscom

In one fell swoop Marco Tronchetti Provera Pirellis chaiman has cut the value of

the [firms] underlying assets by 30

Complex deal

Pirelli on Monday said it would sell off its tyre and cable businesses in partsto pay for the deal cut Olivettis debt and possibly merge it with TI to focus on the

telecoms business



The complex 7bn euro deal also gives Pirelli backed byfashion retailer Benetton control of TIs mobile phone unit

TIM Italys largest mobile operator telephone directoriespublisher Seat-Pagine Gialle and Tinit one of Italys leading

internet service providers

Telecom [Italia] is in a strong financial position Everyoneknows the debts are in Olivetti but there are instruments forreducing Olivettis debts Mr Tronchetti Provera said

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 Sundaywho 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 Pirellis hands after the company that heldthe controlling stake Bell was sold by its shareholders

despite opposition from Olivetti and TIs chief executiveRoberto Colaninno

Under the deal a specially created company in which Pirelli

holds 60 and the Benetton familys Edizione Holding holds40 bought control of Bell

It is expected that the holding company will be folded intoPirelli once the deal is cleared by the European Commission

Olivetti said on Sunday night that Mr Colaninno would resign and be replaced byEnrico 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 worlds biggest corporate

takeover battle

Mr Colaninno said on Sunday he tried and failed to persuade fellow investors in Bell

not to accept Pirellis offer but praised Pirelli and the Benetton family for striking agood deal

The company stays Italian and that for me is something to be proud of hetold the Italian press

Tronchetti Provera is smilingnow

Colaninno Likely to resign



Bell grouped together dozens of northern Italian entrepreneurs who gambled ontaking 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 Italys 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 itsholding in Blu

TI is also the biggest private investor in Telekom Austria

ECONOMIST

Pirelli buys Telecom Italia


Aug 2nd 2001From The Economist print edition

PIRELLIS 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 firms big move into

telecommunications announced over the weekend Flanked by the Benetton familys 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 Italys leading telecoms grouphellip

Telecomscom01 November 2001In Italy baffled shareholders are trying to absorb the implications of Pirellis complex eight-layered takeover

of Telecom Italia effected in August and backed by the Benetton family The financial restructuring that hascome 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 companyOlivetti has a debt which now stands at euro174bn Chief executive Tronchetti Provera has been rather coy onthe topic of asset sales preferring to concentrate on the euro4bn ($367bn) he raised in debt from the sale of anOlivetti convertible bond (along with some shares) Some analysts have suggested that a split-off of TIMcould be in the pipeline but that seems unlikely given Proveras avowal to focus on Latin America and other mobile interests in order to boost earnings



Telecomscom

Pirelli grabs telecom Italia01 September 2001

How do you take over a company valued at euro110bn with just euro7bn

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 becomea target for Deutsche Telekom DT confirmed its interest in a partnership with TIM and it is worth noting thatT-Mobil has not developed positions in markets where TIM has a presence But DT has several acquisitionsto digest first and a euro688m debt mountain to tackle Another suitor could be Telefonica TI is labouringunder the euro18bn debt burden of its 55 stakeholder Olivetti in which Pirelli backed by Benetton took a23 controlling stake to close the deal Now Tronchetti Provera has acknowledged that the ownershipstructure needs to be simplified and the question of Olivettis debt addressed Attention is focused on theprospect of a two- or even three-way merger between Pirelli Olivetti and Telecom Italia

2003

Telecomscom

Shorts01 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 mergersseems to me to be over Now is the time for growth and investment in research and new technologies hetold Italys Milano Finanza weekly

2005

Telecomscom

TI launches IPTV01 July 2005

Telecom Italia is to increase competition in Italys pay-TV market by launching a nationwide IPTV product inthe autumn It has launched a trial in four cities (Rome Milan Bologna and Palermo) and expects to add 21more 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 moviesPartners include Microsoft Alcatel and Pirelli Broadband



wwwfinanznachrichtende

12052005 1905

Pirelli says cable sale on track to use part of proceeds on Telecom Italia shrs

MILAN (AFX) - PirelliampC 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 s

in Telecom Italia SpA (Nachrichten Aktienkurs)

He said the Telecom Italia shares could be acquired through direct purchases Tronchetti said Pirelli can acquire direc

up to 300 mln Telecom Italia shares which would be held separately from the Telecom Italia investment held with

partners via Pirellis unit Olimpia SpA

Olimpia is Telecom Italias largest shareholder with a 218 pct stake Olimpia includes as shareholders the Benetton

family plus Italian banks

Commenting on Pirellis tyre activities Tronchetti said the group should reach the results targets set for 2006 as earl

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 PirelliampC Real Estate SpA Carlo Puri Negri said he sees the units EBIT profit rising 15-20 pct this yearadding that this is in line with the companys 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

TelecomscomItalian PM wants details on TI reorganisation12 September 2006



Italian Prime Minister Romano Prodi said Tuesday that he was surprised by the scale of TelecomItalias (TI) reorganisation announced Monday and warned that the government is seeking moredetails

According to reports in the Italian press Prodi said the government wants to know the details andmotivation of the deal

The reports suggest Prodi had discussed the reorganisation almost a fortnight ago with TIs chairman MarcoTronchetti Provera Observers believe Provera did not reveal the full extent of the move during theconversation

It is understood that Prodi is not alone in his concern Mario Lettieri undersecretary at the economy ministryis 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 newcompanies

The reorganisation is designed the company said to help it sharpen its focus on broadband and mediaactivities both at home and across Europe

Speculation has raged around whether the firm would as part or the reorganisation sell off of its mobilearm TIM On Sunday the Italian daily Il Sole 24 Ore said TI could raise Eur 35bn if it sold its mobile unitand Eur 6bn from its Brazilian arm The sales so the speculation goes could ease the companys Eur 40bndebt

Update more details on TI reorganisation14 September 2006

General Electric Time Warner and Rupert Murdochs News Corp have all emerged as potentialplayers in Telecom Italias proposed spin off of its mobile operation

The news emerged Wednesday when Prime Minister Romano Prodis office released details of a meetingbetween Telecom Italia head Marco Tronchetti Provera and Prodi The Italian government is reportedlyoutraged over the plans which could see the mobile operator fall into the hands of foreign investors

Prodi is understood to have been unaware of Tronchettis plans to spin off Telecom Italia Mobile (TIM) in amove that speculation suggests could precede the sale of part or all of TIM for around Eur35bn


But in light of the news Thomas Husson analyst with Jupiter Research questions whether TIM was a largeenough player to compete in a consolidating industry anyway TIM has more than 29 million lines in Italygiving it 40 per cent market share and is number two in Brazil with 22 million lines But after severalsignificant acquisitions [in the market such as O2 and Amena] it sounds like it now has a lower profile thanChina Unicom Vodafone Telefonica TeliaSonera T-Mobile or Orange to compete at an international levelHusson said



The TimesSeptember 14 2006

The man who saved struggling Pirelli isdriven into a corner

BY RICHARD OWEN

The decision to sell off Italia Telecom Mobile is the talkof the business set in Rome Our correspondentreports on fears over Marco Tronchetti Proverasplans

HAS Marco Tronchetti Provera head of Pirelli and Telecom Italia finally losthis golden touch Tall tanned crinkly haired and stylish with apparently

effortless business skills and connections he has embodied the discreet butruthless charm of the new Italian industrial class for two decades

He is a regular feature of the gossip columns as well as the business pagessailing his 30-metre yacht Kauris III being seen at La Scala premieres or hisPortofino villa with his glamorous Tunisian-born wife of five years the modelAfef Jnifen Unlike old-style managers from Italian family dynasties it is saidhe combines a patrician manner with a competitive even combative modernapproach

Yesterday after the fallout from his remarkable U-turn over the reorganisationof Telecom Italia the headlines told a different story falls on the Milan stockexchange the threat of strikes and industrial turmoil mdash and glacial anger from

Romano Prodi the Prime Minister who before setting off on a trip to Chinacommented bitterly that Signor Tonchetti Provera had kept him in the dark

Now nearly 60 Signor Tronchetti Provera comes from a well-establishedMilanese family that made its wealth from Sogemar a maritime transportcompany At first he worked in the family company after graduating ineconomics from Bocconi University in Milan but then at 38 he joined Pirelli in1986 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 Pirellisucceding Leopoldo Pirellirsquos son Alberto and then boldly expanding the tyregiantrsquos operations to include fibre-optics and property

When Pirelli sold its optical components division to Corning in 2001 for $35billion (pound187 billion) Pirellirsquos senior management awarded itself a sizeable cutwith an estimated $300 million going to Signor Tronchetti Provera himself Justa few months later he and the Benetton family took over Telecom Italia bybuying a 27 per cent stake in Olivetti

For some all this is a classic example of the maxim that ldquothe son-in-law alsorisesrdquo After all he had married Cecilia Pirelli daughter of the then Pirelli



chairman Leopoldo Pirelli in 1978 which must have helped No his friendsand admirers say his family and the Pirellis were part of the same Milan socialset 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 Proverarsquos business acumen saved theailing company when he took over Pirelli was deeply in debt because of thedeclining tyre market and a series of mishandled acquisition attempts

Some say that it was close to bankruptcy Signor Tronchetti Provera tookdrastic action selling off redundant divisions cutting jobs investing inproduction-line robots and launching an advertising campaign fronted by theactress Sharon Stone

Above all he diversified mdash as other top Italian companies such as Fiat andBenetton have also had to do mdash noting that Italian industry had to adapt in an

era of globalisation and competition from Asia which meant that ldquowe cannotsimply do business in Europe as usual we have to fight as if we werestarting from scratchrdquo

In its core business Pirelli developed high-performance ldquointelligentrdquo tyresCoupled with streamlining and the move into fibre-optics mdash the key to theinternet mdash the shake-up restored Pirelli to profitability

The question is whether Signor Tronchetti Provera over-reached himself withthe acquisition of Telecom Italia perhaps at an inflated price At the time thedeal seemed logical if not inevitable given Pirellirsquos successful move into fibre-optics He and the Benettons Signor Tronchetti Provera said were naturalpartners ldquoWe both go straight to the point and donrsquot waste time and wersquoreboth interested in creating value my goal is to regenerate confidence in thecompany and self-confidence in the people who work for itrdquo

Using the same techniques as at Pirelli Signor Tronchetti Provera sold assetsstreamlined the company by cutting jobs and by 2003 had turned an annualloss of $17 billion into a profit Then he embarked on a ldquoconvergence strategyrdquoby merging fixed-line mobile and internet

That is where he has come unstuck mdash with the announcement after muchrumour and denial of the surprise plan to offload Italia Telecom Mobile (TIM)This has aroused fears that like other mobile operators in Italy the companywill end up in foreign hands

In a sense he had no choice last year Telecom Italia posted losses of euro50million (pound34 million) Signor Tronchetti Provera may argue that EuropeanUnion regulations have made life difficult for telecoms operators over convergence plans and that his strategy had to be radically re-thought so thathe 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 havekept the Government better informed mdash ldquoas Gianni Agnelli [of Fiat] was alwayscareful to dordquo mdash but ldquomarket forces must be allowed to take their courserdquo

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 poorsummer does wonders for a tan And Marco Tronchetti Proveras well-bronzed face bears the evidence of time spent at the helm of his 30-metre yacht working up its 16-man crew and competing in regattas ldquoI have the physique but less time than I would like Alas in thefuture when I may have more time I may not have the physiquerdquo hesays



His favourite pursuit was badly disrupted five summers ago when inJuly 2001 as chairman of Pirelli a tyre company he continues to headMr Tronchetti Provera did a deal to win control of Telecom Italia Italysformer telecoms monopoly and take over its chairmanship To do sohe used Pirellis cash pile of euro44 billion ($39 billion) raised from the

sale in 2000 of its fibre-optics business to Corning and Cisco Systemstwo American firms He also borrowed heavilymdasharound euro3 billion of loans were renegotiated last yearmdashand took two banks asshareholders in Olimpia the holding company used to buy the stake inTelecom Italia But they imposed the condition that Pirelli would haveto buy their shares back for at least the original purchase price Thebanks renewed this arrangement after three years for a further twoand the bill is now due Although Telecom Italias shares are nowworth euro229 they cost euro417 when Olimpia bought its stake so Pirellimust pay out almost euro12 billion next month In July it paid almosteuro500m to buy back the shares of a company called Hopa that hadbought into Olimpia in 2003

To meet these commitments Mr Tronchetti Provera has had todismember his business empire Pirelli sold its cables division for euro13billion in June last year to concentrate on property and tyres In June itsold a large stake in Internazionale a leading Milanese soccer team of which Mr Tronchetti Provera is an enthusiastic fan and in July it sold39 of its tyre division to a group of banks to raise euro740m It hasother assets on the block Since shortly before Pirelli made itsinvestment in Telecom Italia the price of Pirellis shares has fallen

from euro310 to euro074

This is the background to the dramatic U-turn that Mr TronchettiProvera announced this week at Telecom Italia which is based acrossthe street from Pirellis headquarters in Milan Although he has soldassets raising euro154 billion since 2001 to pay down debt TelecomItalia still has debts of euro413 billion almost equal to its stockmarketvalue On September 11th Mr Tronchetti Provera announced that thecompany would split its mobile-phone division Telecom Italia Mobile(TIM) and its fixed-line network into two new holding companiesThis would he insisted enable Telecom Italia to focus on itsbroadband internet business and in particular the delivery of television services over broadband connectionsmdasha new market intowhich Telecom Italia is advancing along with other incumbenttelecoms operators around the world

On September 7th Mr Tronchetti Provera met Rupert Murdoch theboss of News Corporation to discuss a partnership ldquoThanks to



broadband telecoms and the media are converging and that is wherewe are movingrdquo says Mr Tronchetti Provera The result so far is asmall deal to supply films from News Corps Twentieth Century Foxover Telecom Italias wires But rumours abound that some form of closer tie-upmdashsuch as a merger between Telecom Italia and Sky Italia

News Corps satellite-TV unitmdashmight also be on the cards Either wayMr Tronchetti Provera hopes that positioning Telecom Italia as a mediacompany rather than a telecoms firm will boost its share price sincemedia firms tend to trade at higher multiples of their earnings

If that fails separating Telecom Italias fixed and mobile networks intoseparate divisions provides a fallback plan It is not necessarily theprelude to a sale Mr Tronchetti Provera insists though he has notruled out that possibility and it would make a sale much easier Heseems in particular to be inviting bids for TIM which might fetcharound euro35 billion ($445 billion) Telecom Italia would reduce its debtand Pirellis proceeds from the sale would cover buying the two banksout of Olimpia

But the sale of TIM Italys largest mobile operator would beproblematic Mr Tronchetti Provera has long been one of Europesleading proponents of ldquoconvergencerdquomdashthe idea that telecoms firmsshould tightly integrate their fixed mobile and broadband operationsSelling TIM which was fully integrated into Telecom Italia only lastyear would mark a complete reversal of this policy The price wouldstretch both private-equity buyers and debt-laden rival operators

Worst of all government ministers have condemned the plan and oneeven called for a change of management The unions threatened tostrike

Expensive hobbies

Mr Tronchetti Provera won accolades for the smart way he steeredPirelli during the 1990s But his handling of the tyre group over thepast five years would have provoked a mutiny by shareholders in mostlisted companies Yet he is still in command That is due partly to the

chain of nested stakes that grants his family voting rights of 254despite holding less than 8 of Pirellis shares Friendships andalliances of cross-shareholdings which often trump economic factorsin Italy have also helped him to keep his job

Taking control of Telecom Italia proved to be a bad call MischievousMilanese insiders say that Mr Tronchetti Provera whose family in effectowns less than 1 of Telecom Italia wanted to head the telecoms



giant because it offered more power and prestige than running PirelliHe insists however that it was his duty as an industrialist to investthe gains from the sales to Corning and Cisco in an industrial venturethough he says he would have bought a bank had he guessed whereTelecom Italias shares were heading ldquoThe value has halvedrdquo he says

ldquoI know because I have lost mostrdquo


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 MarcoTronchetti Provera last night resigned as chairman of Telecom Italia at anextraordinary meeting of the board in Milan

The drama of the resignation which followed a clash with the Governmentover the future of the company threatened to engulf Romano Prodi the PrimeMinister who is on a political and trade trip to China but is under pressure toappear before Parliament to answer to the nation for a crisis that has shakenItaly

Telecom Italia said that Signor Tronchetti Provera stepped down todepersonalise and defuse the situation He will be replaced by Guido Rossithe veteran former head of Italyrsquos stock market regulator who was alsoappointed 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 therevelation by Angelo Rovati a senior adviser to Signor Prodi that he haddiscussed the break-up of Telecom Italia with Signor Tronchetti Provera asearly as September 6

This triggered speculation that Signor Prodi knew more about the TelecomItalia plans than he has admitted Publicly Signor Prodi has complained that hewas kept in the dark about Signor Tronchetti Proverarsquos plans to sell off Telecom Italiarsquos mobile phone arm Telecom Italia Mobile (TIM) The move hasaroused fears that TIM will end up in foreign hands

But Signor Rovati sent a secret report to Signor Tronchetti Provera suggestingthat the state should find a formula to ensure state control of the networkWhen this became public Signor Rovati said that he had acted without Signor Prodirsquos knowledge

Paolo Gentiloni the Telecommunications Minister said yesterday ldquoTheGovernment has never discussed and does not intend to carry outinterventions of this kind



ldquoThe problem is that Telecom Italia thinks it can resolve its debt problem byselling TIM The Government does not like this hypothesisrdquo he said referringto the companyrsquos euro40 billion (pound27 billion) of debt roughly equivalent to itsmarket capitalisation

Earlier this week Signor Prodi said he was ldquodisconcerted and concernedrdquo bythe move to spin off TIM But some Centre Right opposition MPs called for hisresignation Asked in China if he would appear before Parliament the PrimeMinister responded ldquoWhat mdash are we all mad There are no new elements tothe case Letrsquos leave aside the rumours of which there have been too manyand wait for the facts to talkrdquo

TIM was fully integrated into Telecom Italia only last year Signor TronchettiProvera who also heads Pirelli and is credited with having turned both Pirelliand Telecom Italia around has been a strong supporter of ldquoconvergencerdquo mdashthe theory that telecom groups should integrate mobile fixed and broadbandactivities Signor Tronchetti Provera who took over Telecom Italia in 2001denied that offers had already been made for TIM saying that ldquowe only want to

manage our assets in the best possible way and be more flexible We arenot in contact with anyonerdquo

Telecom Italia was privatised in 1997 but the Government still holds vetopowers over the ex- monopolyrsquos corporate decisions

Signor Prodi reiterated that he knew nothing of the plan to separate off TIMand said Signor Tronchetti Provera had informed him of only a possibleldquopartnershiprdquo with News Corporation parent company of The Times

Telecomscom

Bushido-style drama grips Italy18 September 2006

In a week that saw Italys government criticised for interfering with private industry falling on onessword seems to be catching on

Political drama in Italy has always been worth getting front seats for and last weeks entertainment was noexception Culminating in Telecom Italias boss Marco Tronchetti Provera opting for Bushido-style sacrificeby falling on his sword telecoms suddenly got very interesting

Its an heroic end for the firms leader of four years and has thrown up the spectre of a full-scale investigationinto the proposed sell-off of TIs mobile arm

Italys new-ish PM Romano Prodis much publicised debacle over the Telecom Italia reorganisation hashorrified some and delighted others while ex-PM Berlusconis old guard weighed in on Prodis apparentfoolishness

Last Wednesday Renato Brunetta led the assault on Prodi calling him an interfering busybody after Prodis government distributed a statement detailing private discussions between the Prime Minister andTronchetti Not surprising really given Brunetta is the former economic advisor to the ever-bronzedBerlusconi



Ulterior motive is such an ugly phenomenon

Before Wednesdays events unfolded analysts could not believe TIs (then) chief had - in the space of asingle day - dumped plans that have taken years to hatch effectively abandoning a telecoms strategy that isin-line with other European players Just two years after the firm had bought back its mobile arm it lookedlike 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 withRupert Murdochs much maligned mouthpiece Fox is hardly a stroke of genius Selling off one of Europesstrongest performing mobile companies that is a market leader with great brand recognition and a solidreputation for service and reliability now thats something completely different

Gartner analyst Monica Basso could hardly disguise her consternation having been present at the nowinfamous press conference where the premier expressed surprise at the full-extent of Tronchettis plansIn 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 Its almostunbelievable 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 believein 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 Andwho can blame him The industrys main focus right now is bringing together the disparate strengths andweaknesses of fixed and mobile telecommunications FMC convergence call it what you will Europeantelcos 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 sensitivebusiness information by Prodi will reverberate through Italian politics for years - probably - one has toacknowledge that his understanding of the telecoms market today seems a heck of a lot sharper thanTronchettis 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 questionswhether the reasoning is entirely strategic I wonder if it is more to do with financial considerations Marinisaid on Tuesday This move has alarmed everyone because it goes against the previous considerations putforward by TI Its a complete turn-around from the original strategy

Various reports and analysis suggest members of Prodis delicate coalition are against the sale of TIMfearing it could have a negative impact on the Italian economy if it is sold and potentially more damagingcedes control of telecoms assets to foreigners

Interestingly it is the leftovers of Berlusconis 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 twoItalian Banks (Banca Intesa and Unicredit - owning 47 per cent each) The interesting thing is that byOctober 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 willhave also have to consolidate Olimpias debt (Eur 413bn) to its balance sheet

Basso conjectures that Pirelli cannot allow this to happen and explains why it would need to get rid of thedebt 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 GuidoRossi



Rossi has been chairman of TI before when he oversaw Telecom Italias privatisation in 1997 He fell on hisown 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 Italias fixed-line network

Im not sure Bushido is as popular in Italy as it was during the feudal Japanese epoch but at the rate atwhich Italian executives are hurling themselves at sharp pointy things it could well be making a Europeancomeback

Have a good week

Telcomscom

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 therow between the company and the Italian government reached breaking point

Following an extraordinary board meeting in Milan on Friday night the company announced that Tronchettihad quit He took over the company in 2001 and remains the companys biggest shareholder

Soon after the resignation Guido Rossi the lawyer who led the recent inquiry into corruption in Italianfootball assumed the chairmanship By this morning (Monday) Rossi was already looking to calm TIsinvestors by assuring them the is financially and technologically strong In the Italian daily La Stampa hesaid the company was strong enough to get through the past weeks drama

At the same time Angelo Rovati an economic advisor to PM Prodi announced his resignation Rovati washeavily 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 TIs (then) chairman Tronchetti

Tronchettis departure underlined tension between the government as he left accusing Prodi and his team of interference



Pirelli takes 80 of Telecom Italia05 October 2006

Italian tyre manufacturer Pirelli paid out Eur117bn (pound788m) on Wednesday for two 477 per centstakes in Italian holding firm Olimpia which controls Telecom Italia

Pirelli acquired the holdings under previous option agreements made with Banca Intesa and UnicreditoItaliano Pirellis 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 Olimpias debt into its own balance sheet -

a condition which analysts believe may dramatically influence a decision to sell off mobile unit TIM

Speaking with telecomscom recently Gartner analyst Monica Basso forecast that Pirelli would have to buyup the quotes of Banca Intesa and Unicredito Italiano if it could not find someone else to buy them insteadIf Pirelli has to buy it will have also have to consolidate Olimpias debt (Eur 413bn) to its balance sheet


Earlier this week the Italian operator issued a statement denying reports that Italian bankers were plotting tostep in and save Telecom Italia from falling into foreign hands

On Tuesday a reported 80 per cent of the companys 63000 employees took to the streets to protestagainst 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



But Tronchetti will have more room to maneuver than Colaninno He used a company he controlsas the vehicle for the takeover and isnt dependent on a clutch of financial backers Colaninnostarted to lose his grip in March when markets were pounding the shares of Olivetti and TelecomItalia Foiled in their expectations of a quick speculative gain both the Brescia-based investorsand their banks--Chase Manhattan and Banca Antonveneta--were angry at Colaninnos repeatedrequests for capital increases and frightened by the sliding stock prices They had lostconfidence says a Milan banker

In early July Tronchet-ti broached a buyout but Colaninno refused Near the same time BancaAntonveneta approached the Benetton family the Veneto-based clan that built a $5 billionindustrial group out of a retail clothing business The Benetton groups holdings include a stake inBlu Italys fourth-largest mobile phone operator Benetton board member and financial headGilberto Benetton offered Colaninno a capital injection in exchange for co-management of Telecom Italia but investors feared a dilution of their stock and Colaninno didnt want to sharecontrol

The pressure kept mounting Colaninnos own effort to restructure Olivettis debt through acomplex share conversion and buyback plan stalled So a panicked Colaninno embarked on afrenzy of negotiations in mid-July with dozens of potential investors Interested parties included

Spanish power utility Endesa media mogul Rupert Murdoch merchant bank Mediobanca SaudiPrince Alwaleed and Spanish rival Telefonica according to executives close to the deal Endesawas ready to make an offer insiders say but when Colaninnos team quietly sought a green lightfrom the government which still holds a golden stake in Telecom Italia the response from Romewas chilly

Catching word of Colaninnos effort Tronchetti made his move In late July he offered theBrescia investors $3 per Olivetti share They countered with $395 and talks broke off Then onFriday July 27 halfway through a Telecom Italia board meeting in Milan Colaninnos partner Emilio Gnutti walked out of the room to see Tronchetti several blocks away at Pirelliheadquarters Tronchetti upped the price for Olivetti shares to $365--80 above that days shareprice--and the two men shook hands on the deal Gnutti then dined with Colaninno to inform himthat his investors wanted to accept the buyout

To work out a deal Colaninno investment bankers industrial backers and investors convergedon Pirelli HQ on Sunday Chaos reigned as Colaninno tried to impede the sale for three hoursMeanwhile Spains Telefonica bombarded Colaninnos investors on cell phones with a higher offer The air conditioning went out Food was scarce and no one slept that night--includingTronchetti says one banker

Despite the prospect of richer offers from foreign bidders the group preferred an all-Italian dealMany others were interested but no one made written offers says Ettore Lonati an industrialistfrom Brescia and one of Colaninnos original backers

QUICK WORK But Colaninno continued to delay demanding a more lucrative goldenhandshake 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 amColaninno resigned A sleep-deprived Tronchetti faced analysts and the press as the chairman-in-waiting of Telecom Italia pending a 30-day antitrust review by European Union officials Wewill present a financial restructuring and part of the industrial plan as soon as we have the greenlight says Tronchetti

Those close to Tronchetti say he will work swiftly to address the debt bolster investments intechnology and innovation and transform the sleepy culture of Telecom Italia into that of aglobally competitive company Hes decisive and transparent and doesnt compromise saysGilberto Benetton who took a 6 stake in Pirelli several years ago because he believed in




BBC NEWS ONLINE









the companys value





Breakingviewscom



Complex deal


telecoms business




















Good deal


takeover battle









BT trouble








ECONOMIST













Telecomscom




2003

Telecomscom



2005

Telecomscom







12052005 1905












2005


weaker dollar




2006





















BY RICHARD OWEN






























Face value


Sep 14th 2006



Reuters

















Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale




BBC NEWS ONLINE









the companys value





Breakingviewscom



Complex deal


telecoms business




















Good deal


takeover battle









BT trouble








ECONOMIST













Telecomscom




2003

Telecomscom



2005

Telecomscom







12052005 1905












2005


weaker dollar




2006





















BY RICHARD OWEN






























Face value


Sep 14th 2006



Reuters

















Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale




















Good deal


takeover battle









BT trouble








ECONOMIST













Telecomscom




2003

Telecomscom



2005

Telecomscom







12052005 1905












2005


weaker dollar




2006





















BY RICHARD OWEN






























Face value


Sep 14th 2006



Reuters

















Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale




BT trouble








ECONOMIST













Telecomscom




2003

Telecomscom



2005

Telecomscom







12052005 1905












2005


weaker dollar




2006





















BY RICHARD OWEN






























Face value


Sep 14th 2006



Reuters

















Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale



Telecomscom




2003

Telecomscom



2005

Telecomscom







12052005 1905












2005


weaker dollar




2006





















BY RICHARD OWEN






























Face value


Sep 14th 2006



Reuters

















Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale




12052005 1905












2005


weaker dollar




2006





















BY RICHARD OWEN






























Face value


Sep 14th 2006



Reuters

















Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale




















BY RICHARD OWEN






























Face value


Sep 14th 2006



Reuters

















Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale





BY RICHARD OWEN






























Face value


Sep 14th 2006



Reuters

















Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale




















Face value


Sep 14th 2006



Reuters

















Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale





Face value


Sep 14th 2006



Reuters

















Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale
















Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale








Expensive hobbies



























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale
























Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale









Telecomscom













Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale







Indeed




So who is right














Have a good week

Telcomscom



















be put up for sale






Have a good week

Telcomscom



















be put up for sale












be put up for sale

Documents

Telecom Italia Strategy