Olivetti, the ailing Italian computing and technology company, announced an enormous issue of almost pounds 1bn in fresh capital this weekend, as part of a financial restructuring organised by a consortium of friendly banks and business leaders anxious to bail one of the country's most prestigious businesses out of a deep debt hole.
Olivetti's chairman, Carlo De Benedetti, said that his firm hoped to raise L2,257bn (pounds 917m) in new share issues before the end of the year. In addition, the Olivetti holding companies Cofide and Cir will make separate cash calls of L167.5bn and L465bn.
The transfusion of fresh funds, the largest in Olivetti's history, would be the second appeal for new capital in two years and attests to the company's increasing struggles to compete in the international computer market. Having failed to report a profit since 1989, Olivetti has accumulated net debts of L2,000bn, including a loss of L1,087bn for the first half of 1995.
But the restructuring package owes much to the clubbish nature of the Italian business community, and was both arranged and underwritten chiefly by Enrico Cuccia, the 87-year-old guru of the secretive Milan bank, Mediobanca. Other friends involved in the deal included the US investment house Lehman Brothers, which not only offered to sell Olivetti its 8 per cent stake in the promising cellular phone business Omnitel, but also promised to underwrite 120 million shares in the new cash call itself.
In all, around one quarter of the capital increase has been pledged in advance, including L50bn by Mr De Benedetti himself. The deal will be subject to the approval of shareholders at an extraordinary meeting on 25 October.
With share prices losing about 10 per cent of their value over the past two weeks, rumours had been swirling about the company's future, including the possibility that it might pull out of the particularly vulnerable personal computer market altogether. But Olivetti rebuffed that suggestion by unveiling 22 new PC models, including a multi-media workstation called Envision, in the middle of last week.
The restructuring package aims to refocus Olivetti on its core businesses and pull the personal computing division into the black by 1996 or 1997. The operation will involve considerable pain, however, including the slashing of around 5,000 of Olivetti's 33,000 workforce worldwide by next June.
It is far from clear whether Olivetti will wrest back some of the market share it has lost in recent years, along with its European competitors Bull of France and Siemens of Germany, to the US giants Compaq and IBM. In Europe, Compaq enjoys 12.7 per cent of the market, IBM 10.4 per cent and Olivetti only 5.3 per cent. Olivetti will have to face the verdict of the market, starting with the reaction of the Milan bourse this morning. Share trading was suspended on Friday pending the recapitalisation announcement.Reuse content