Outlook: Kill off this ill-conceived monstrosity
Friday 23 April 1999
Their deal, announced instead in the relative safety of London, neatly drives a man-sized wedge into the Germans' existing joint venture with France Telecom and made all yesterday's grand talk of a new European powerhouse in telecoms ring rather hollow.
But French anger is the least of the obstacles this ill-conceived "merger of equals" faces.
It is not very long ago that the two companies were overblown state-owned monopolies and indeed the German government still controls 72 per cent of Deutsche Telekom. There is scant evidence that much has changed. There is, it seems, no intention of offending the trade union nominees who will pack the supervisory board by taking the axe to the combined workforce of 300,000. Even the one billion euros in cost savings being forecast, a modest sum given their combined sales of 60bn euros, may prove a tall order to achieve.
The two sides have yet to dream up a name for this monstrosity (Euro.telecom?) but they have had plenty of fun drawing up management flow charts. The chairmanship of the 20-strong supervisory board will rotate on a buggins turn basis between a German and an Italian. More worrying is how the twin chief executives, Franco Bernabe and Ron Sommer, will co-exist. Mr Bernabe's quip that one man will ski while the other works was apparently meant as a joke but few took it as such on these Anglo-Saxon shores.
In any case, the Bernabe-Sommer double act will with luck never get to play management musical. The regulatory hurdles are daunting. The other clincher is price. Following yesterday's retreat by Deutsche shares, the merger values Telecom Italia shares at 11.77 euros compared with the 11.50 euros on offer from the rival suitor Olivetti, which has already jumped through all the regulatory hoops.
That is a derisory premium given the year of regulatory uncertainty that Telecom Italia shareholders will have to endure without any guarantee of a satisfactory outcome.
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