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Telecom Italia merger - Olivetti's not out yet

Chiyo Robertson ZDNet.co.uk

Published: 21 May 1999 16:08 BST

The main contender in the battle to merge with Italy's state telecom company is Germany's Deutsche Telekom. But the Italian company's main shareholders are reported to be shifting their favour towards Olivetti.

Shareholders have until the end of today to make up their minds. Despite Olivetti's "sketchy" merger plans, it could be in with a chance if it wins more than 35 percent of the votes. The company, that shed its PC business more than 16 months ago, said it would walk away from the deal if it draws in less than 35 percent.

"Olivetti may only be one sixth of the size of Deutsche, but the big issue is shareholder preference. There're some major obstacles in the way such as government/regulatory clearance, which may take 6 to 12 months or even longer," said Dataquest principle analyst Steve Wallage.

Analysts also doubt the wisdom behind the deal. "There's very little synergy between both national players. Apart from the sheer size, what can they bring to the party?" said Wallage.

There is also the issue of nationality. Observers believe some Telecom Italia shareholders may oppose a foreign take over.

If a German/Italian pact does win the votes, then a pan-European powerhouse worth some £108 bn will be created. It will be the world's second largest telephone company -- the biggest is Japan's NTT.

This, according to Wallage, will put pressure on our national carrier.

"A German/Italian merger would create a giant twice the size of BT with much more firepower. BT will be under pressure to look at merging or buying a company of similar size," he said.