Above all, this was a battle lost by Franco Bernabè, the conscientious industrialist. His bankers wanted all-out war against Olivetti. Bernabè tells Euromoney exclusively why he held them back. He hoped a cogent industrial plan for tomorrow would carry more weight than windfall profits today for investors and banks. He tried to run the giant telecom firm as usual, recoiling from any measure he wouldn't have taken in the ordinary course of events. He didn't understand that takeover battles are extraordinary episodes - bare-knuckle fights where victory is the imperative.
In reconstructing the most important takeover contest of the decade, Euromoney reveals details for the first time of how the scheme was hatched. It appeared an impossibly audacious bid, but many separate groups independently had hit on the idea last year. Colaninno dreamed of leaping beyond Olivetti's limits; Lehman proposed a subtle grasping of control; Mediobanca a full-scale assault; DLJ was working on an LBO and then, crucially, Chase said it was financeable.
It is a story of tense moments previously untold: of how the crucial financing came to the brink of collapse; how Mediobanca, true to form, was more deeply involved than the other banks knew; of the fearsome defences proposed by CSFB and JP Morgan to which Bernabè said no. He explains how he had developed "antibodies to leverage". And he reveals the history of his dealings with Ron Sommer of Deutsche Telekom. Even some of the principals in the story failed to understand that this was never a deal about the telecoms business. It was the biggest straight fight in European corporate history. Greed, politics and, most importantly, the will to fight carried the day. Marcus Walker reports
Lehman Brothers, Milan, Friday May 21: Roberto Colaninno, chief executive of Olivetti, has a weight on his mind. It is the last day of Olivetti's tender offer to shareholders of Telecom Italia, and the market is leaving its answer until the final hours. Colaninno is unsure of winning an outright majority of Telecom Italia's shares. A victory shy of 50% could unravel the financing of his takeover, thanks to a secret clause in the loan agreement Olivetti has struck.
A worldwide club of banks has lent up to $25 billion to Olivetti's bidding vehicle, a minor subsidiary called Tecnost. They want to be sure that Tecnost can get two hands firmly on Telecom Italia's cashflow so it can repay the debt. With a large minority share, Tecnost might get only one hand on the cashflow, and the loan syndicate has reserved the right to pull out. "The banks are a pain in the ass," says one of Olivetti's advisers from Lehman Brothers.
Colaninno confers with his long-time investment banker Ruggero Magnoni, Lehman's head of European corporate finance. Tendered shares might yet reach 50% before the Milan stock exchange closes for the weekend, but Olivetti had better be prepared for less. The two men gather top colleagues for a conference call to Colaninno's other advisers at Chase Manhattan, Donaldson Lufkin & Jenrette, and Mediobanca. What if? asks Colaninno.
The four advisory banks have come too far on this adventure to see it falter over details like €6 billion in cash. If the loan syndicate starts making excuses, they promise Colaninno, we'll step in ourselves with all the money you need.
A reassured Colaninno heads over to Mediobanca at 4pm accompanied by Magnoni. Acceptances of Olivetti's offer are being monitored inside the three-floor, peach-coloured palazzo of the legendary bank on Via Filodrammatici, tucked behind the Teatro alla Scala opera house. Mediobanca staff are on the phones, double-checking the numbers. The offer closes at five o'clock; the counting goes on.
Gradually, a cast of characters from the five-month drama assembles on Mediobanca's first floor. They have come to take the final curtain. They are just in time for the last twist in an already bizarre plot.
Colaninno is joined by his two sons, Matteo and Michele, and by colleagues from Olivetti. They include chief telecoms strategist Marco de Benedetti, son of Carlo, Olivetti's former monarch whose reign went from glory to infamy. Olivetti's finance head Luciano La Noce arrives late on the scene after going for a coffee, as is his way.
Ruggero Magnoni is joined by Lehman Brothers' number two on the Telecom Italia deal, top M&A brain Vittorio Pignatti, and by others from the army of Italians who staff Lehman's European outposts.
Chase Manhattan calls by. Its contingent includes Milan chief Alessandro Mitrovich and the young Englishman Richard Blakesley from the London M&A team. Three of Italy's top corporate lawyers arrive. Sergio Erede, Umberto Nicodano and Carlo D'Urso have guided Olivetti throughout this baptism of fire for Italy's new takeover law.
The host bank's contingent is led by three of its bright young hopes. Matteo Arpe, 34 and already head of capital markets, corporate finance and treasury, has handled most of Mediobanca's work on Telecom Italia. Alberto Nagel and Massimo di Carlo are the two other figureheads of the new generation.
Mediobanca is traditionally shrouded in mystique and mired in intrigue. Since the 1980s it has fought a rearguard action to preserve its network of influence, resisting the growing pluralism of Italian business and finance. But in helping a provincial upstart, Colaninno, to fight an open-market contest against a blue chip packed with directors from the Italian establishment, Arpe's investment-banking division has shown that Mediobanca can work with the grain of modernity, as well as against it.
The atmosphere in the rooms and corridors of Via Filodrammatici reminds some present of a tense football match. Some onlookers make bets on the result.
Then the dénouement: a Reuters screen declares that the core shareholders who dominate Telecom Italia's board of directors have sold their stakes to Olivetti. It is a final humiliation for 50-year-old Franco Bernabè, who became chief executive of Telecom Italia only six months earlier with much expected of his reforming talent. It is also a shock to Credit Suisse, a core shareholder that has taken a lonely public stand against selling to Olivetti.