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Tronchetti deploys his magic multiplier

By Camilla Palladino,

Hugo Dixon

How do you finance a €21 billion transaction with only €60 million to €70 million of your own money and still keep control? That's what Marco Tronchetti Provera, the Telecom Italia boss, has achieved with his take-out of the minority investors in Telecom Italia Mobile.

Securing leverage of more than 300:1 is quite a feat, even in a country that is known for its capitalism without capital. Moreover, Tronchetti has done this while simultaneously shoring up his empire's rickety financial structure. He has achieved it by borrowing a large chunk of debt, feeding cash through a complex chain of Chinese boxes and calling on powerful allies.

A chain reaction

The TI/TIM takeover has triggered a chain reaction through Tronchetti's cascade of companies. Start with the bottom of the chain: TI itself. It is financing €14.5 billion of the cost of the deal with new debt on extremely good terms and a bit of its own cash. Tronchetti's good connections with Italian bankers must have helped. The fact that Italian prime minister Silvio Berlusconi is an indirect investor in one of his box companies can't have hurt either.

What this means is that TI only has to issue €6.5

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