Telecom Italia Accepts German Merger Plan

Telecom Italia on Wednesday formally accepted a proposal to merge with Deutsche Telekom, agreeing to what could be the biggest corporate merger in history, after receiving assurances from the German government that it would not interfere with the new firm’s business operations.

The deal would create the world’s second-largest telecommunications company.

A Telecom Italia official, speaking from Rome on condition of anonymity, confirmed that the company’s board met Wednesday and approved a linkup of the two former state-run monopolies.

Telecom’s board had agreed in principle to the merger Tuesday but was awaiting clarification on how the German government would reduce its controlling interest in what would be Europe’s biggest telecommunications firm.

Details of the deal, such as the respective shares Deutsche Telekom and Telecom Italia would have in the merged company, were not immediately available.

Deutsche Telekom officials in Bonn did not immediately respond to phone calls seeking comment on Telecom Italia’s approval of the merger agreement.

Germany’s Finance Ministry, the majority shareholder in Deutsche Telekom, had advised the Italian Treasury earlier in the day that it would refrain from dominating the activities and corporate structure of the merged business.

“The [German] government’s philosophy is not to interfere with management decisions” of privatized companies, ministry spokesman Torsten Albig told reporters in Bonn. “We believe this creates a basis for further negotiations between the two companies.”

The assurance was aimed at easing Italian concerns that the merger would amount to a takeover by the German government of Italy’s flagship phone company.

Telecom Italia, which has been negotiating with Deutsche Telekom to thwart a hostile takeover bid from smaller Italian rival Olivetti, did not disclose any financial details of the deal it favored.

The Telecom Italia official said the board decided Tuesday that the German government can keep its 72% stake in Deutsche Telekom but would need to limit its voting rights after the merger.

With combined revenue of about $63 billion, a merged company would rank as the second-largest telecommunications firm in the world after Japan’s NTT, which posted sales last year of $69 billion.

The merged company could have a market value of nearly $200 billion.

Currently, Deutsche Telekom has a market capitalization of about $117 billion; Telecom Italia is worth about $77 billion. A merger of the two could exceed the value of the pending deal between Exxon Corp. and Mobil Corp., which is worth about $85 billion based on the Exxon’s recent stock price.

Several major issues must be resolved. The biggest hurdle appears to be agreement on how the partners would share ownership.