Telecom Italia, the denationalised phone monopoly, is five times the size of Olivetti, and the deal would be the biggest takeover in Europe.
As a precursor to the proposed deal, Mannesmann, the German telecoms group, yesterday agreed to buy Olivetti's stakes in mobile phone operator Omnitel and fixed-line phone firm Infostrada for $8.48bn. The deal will only go through if the Telecom Italia bid succeeds.
The purchase would give Mannesmann a controlling 55 per cent interest in Omnitel Pronto Italia, which has about 30 per cent of the Italian mobile phone market and is one of the most profitable carriers in the world.
It would also increase Mannesmann's stake in Infostrada to 100 per cent from 50 per cent.
Olivetti's bid is the brainchild of Roberto Colaninno, the 55-year-old managing director whose Bell Consortium owns 13 per cent of the telecoms group. Mr Colaninno has turned Olivetti from loss to profit since taking over three years ago. It no longer makes typewriters or computers.
Yesterday Antonio Tesone, chairman of Olivetti, took a dig at the cluster of banks, insurance firms and the powerful Agnelli family which make up Telecom's shareholder "hard core", saying its prey lacked determined control and was vulnerable to any "foreign offensive".
"The thing that counts above all, our fundamental objective, is to guarantee that at least the telecommunications industry remains in Italian hands," Mr Tesone told Italian newspapers on the weekend.
Olivetti on Saturday announced a 10 euros per share cash, bonds and share offer for its larger rival, leaving the former state monopoly potentially needing a white-knight saviour.
No such knight was immediately apparent although some analysts have cited British Telecom as a potential rescue partner. BT refused to comment.
Mr Tesone said many key industrial sectors in Italy were already "monopolised" by foreigners and it was important the telecommunications sector did not go the same way.
"After the fiasco of the Volvo affair, the car industry also risks ending up abroad," he said. Volvo rejected Italy's Fiat in favour of a deal with Ford.
"Telecom is today a group exposed to any offensive from abroad, lacking a shareholder base that is strong and determined to manage it," he added.
Among the hard core of shareholders assembled by the Italian Treasury ahead of Telecom's 1997 flotation was Ifil, the holding company through which the Agnelli family controls Fiat. Ifil has 0.6 per cent of Telecom.
Mr Tesone denied this was a classic, highly-leveraged Wall Street-style bid from the 1980s. Mr Tesone said: "There is a component of leverage, but that's not the majority."