Telecom Italia Hires Advisors to Fight Olivetti Bid

ROME — Telecom Italia, Italy’s leading phone company, hired Credit Suisse First Boston, Banca IMI and J.P. Morgan & Co. to help repel a hostile $59-billion bid by its rival Olivetti, people familiar with the situation said Sunday.

Europe’s biggest takeover offer, in cash, bonds and stock, values Telecom Italia shares at $11 each, or 10.5% above Friday’s closing price. Telecom Italia, which described the offer as “void,” wouldn’t comment on its next move. The banks also declined to comment.

To block the takeover, Telecom Italia wants the government to intervene and may try to bring in a foreign ally, investors said. The offer, the first for a former state-owned European phone monopoly, would make Olivetti one of the world’s top 10 phone companies just three years after entering the business.

“The game is just beginning,” said Fabio Cappa, a fund manager at Iccri SpA in Rome.

Olivetti, an information technology firm whose market value is one-seventh that of Telecom Italia, would need to borrow most of the money to finance the bid, analysts said. Telecom Italia has about $7 billion in debt.

Approval from the government, which owns 3.4% of Telecom Italia, is key for the bid’s success because the Italian state still holds the right to veto changes in the company’s ownership.

The takeover plan was made possible by the opening of Europe’s telecommunications market to competition last year, a change that allowed new companies such as Olivetti and its German ally Mannesmann, an engineering company, to challenge former monopolies such as Telecom Italia and Deutsche Telekom.

To avoid antitrust concerns and help finance the bid for Telecom Italia, Olivetti will let Mannesmann buy its existing phone units, a move that also needs government approval.

Mannesmann, after buying Olivetti’s controlling stake in Omnitel Pronto Italia cellular network and fixed-line service company Infostrada SpA for $8.3 billion, would own two of Europe’s top three mobile phone companies. It already operates Germany’s biggest network. Olivetti said the sale of Omnitel and Infostrada could take place before the takeover of Telecom Italia is completed. Merrill Lynch & Co. and Deutsche Bank are advising Mannesmann.

Olivetti said it will secure guarantees from Italian and foreign banks for the entire amount of the offer, which specifically excludes U.S. residents and needs 67% acceptance to succeed. The company isn’t offering to buy Telecom Italia’s nonvoting savings shares.

Telecom Italia Chief Executive Franco Bernabe, appointed only last November, has already restored investor confidence that was damaged by a year of management turmoil under his predecessor, Executive Chairman Gian Mario Rossignolo.

Olivetti officials have said they are making the offer to prevent Telecom Italia from being taken over by a foreign rival. Bringing in a foreign company such as AT&T; Corp. or British Telecom would be Bernabe’s most natural defense, said Patrizio Pazzaglia, who manages $90 billion at Nusa SIM in Rome. AT&T; and BT declined to comment.

Bernabe, who was scheduled to meet BT Chief Executive Sir Peter Bonfield and various mutual funds in London today, has canceled his trip, people familiar with the situation said.

“The ball is in Telecom Italia’s court,” said Roberto Odierna, an analyst at Societe Generale in Milan. He said Telecom Italia could even respond by bidding for Olivetti.