At the end of the first day of trading since Olivetti first announced its bid on Saturday, shares in Telecom Italia were up 9 per cent at 9.85 Euros -just short of Olivetti's offer, pitched at 10 Euros per share.
Unease at Olivetti's huge task of attempting to take over a company worth more than five times its size left shares in the former typewriter and computer maker down almost 7 per cent at 3 Euros.
"This is a cheap bid and Olivetti will have to raise it if they have any hope of getting their hands on Telecom," said Paolo Perrella, an analyst at ABN Amro. "A bid of between 12 and 13 euros would be more acceptable to shareholders."
Investors also expressed doubts about the structure of Olivetti's offer. Although the company is proposing to sell its existing telecom operations to Mannesmann, the German giant, for approximately 7bn Euros to help fund the bid it will still have to take on a mountain of debt. Olivetti plans to borrow 20bn Euros from a consortium of banks, while issuing bonds worth a further 13bn Euros.
Telecom has termed the bid "void" and asked the stock market regulator to rule it out as invalid.
But stock market investors will not be the only ones who have their say on Olivetti's move, which is one of the largest hostile bids in Europe. In the end, the Italian government, and the law courts will help deciding the fate of the former monopoly. From Olivetti's perspective, the bid is a wake-up call to a bureaucratic giant that has not yet shaken off its state-owned culture. Since its privatisation in September 1997, the group has been riven by boardroom strife, climaxing in the departure of chairman Gian Mario Rossignolo last year after sensitive forecasts were leaked to the stock market. Then a series of high-profile alliances, including links with AT&T and Cable & Wireless, fell apart.
Advisers to the company point out that the government still appoints three of Telecom's directors even with a shareholding reduced to 3.4 per cent. Another group of founding shareholders, which include the Agnelli family of industrialists, also still have an influence on the company which is disproportionate to their 6.9 per cent stake.
The same accusation can be levelled at Olivetti. Roberto Colaninno, the former accountant who was brought in to rescue the company from ruin in 1996, gets the credit for masterminding deals which allowed Olivetti to pull out of the personal computer industry, find partners for its telecom businesses, and generally restore it to financial health.
At the same time Mr Colaninno also put together a entrepreneurs from Northern Italy who clubbed together in a consortium to buy a 13 per cent stake in Olivetti. It was only once Mr Colaninno had installed a supportive major shareholder that he was able to contemplate launching the bid for Telecom. Observers point out that Olivetti has the support of Mediobanca, the secretive Milanese investment bank, for its bid. "They are trying to portray this as a David versus Goliath battle but it's not as uneven as it seems," one analyst said yesterday.
What's more, Olivetti also appears to have the sympathy of the Italian government. Although its shareholding in the company is small the government still has a golden share in Telecom which will allow it to block any unwanted bid.
Yesterday Massimo D'Alema, Italy's Prime Minister, hinted that a foreign predator would not be allowed to enter the fray.
"It is natural for our interest to be that this great company should not be dismembered or fall under the control of foreign interests." Mr D'Alema said.
His comments effectively blocks one of the most obvious routes for Telecom to escape Olivetti's clutches. Analysts had suggested that foreign bidders such as Bell Atlantic, the US group, could mount a counter-offer. British Telecom and Cable & Wireless had also been suggested as bidders, but neither company is thought to be interested. British Telecom has a shareholding in Albacom, a rival Italian operator, while C&W only yesterday appointed Graham Wallace as its new chief executive.
In the absence of being rescued by a white knight, Telecom is most likely to stress the importance of its new chief executive, Franco Bernabe, in its attempt to remain independent.
Mr Bernabe was brought in late last year from ENI, the Italian oil and gas group, where he is widely praised for the job he did in turning the company around.
Mr Bernabe is due to spell out his strategic vision for the company on Wednesday and is likely to stress the need for the group to move away from its bureaucratic roots. On the same day Mr Colaninno will also lay out his plans for Telecom, and he is expected to point to the relatively low usage of the internet and data transmission in Italy as a key to the company's future growth.
A key battleground in the ensuing war of words will be the role of Telecom Italia Mobile, the fast-growing mobile phone unit in which Telecom still holds a 60 per cent stake. Olivetti is expected to sell down the shareholding if its bid succeeds, in order to pay off its debt, although the company insists it will retain management control.
Telecom could gear up its balance sheet by buying in the minority shareholding in TIM. Indeed, one possible defence strategy being mooted in Milan is for TIM to trump Olivetti by mounting a higher counter-bid for its parent.