Telecom Giants Talk Merger

Telecom Italia SpA has confirmed that it is considering a deal with Deutsche Telekom AG, though few details about the talks were provided.

Speculation about a possible deal between the two telecommunications companies has been swirling for several days. If a deal is reached, it could be the biggest merger in history, beating the pending $73.7 billion linkup between Exxon Corp. and Mobil Corp.

Telecom Italia "is examining with Deutsche Telekom a hypothesis of industrial alliance, the elements of which are still being evaluated," the former Italian state monopoly said in a terse statement late Sunday.

"In the event that an accord is reached, it will have to be deliberated upon by the relevant statutory bodies," it added without elaborating further.

Telecom Italia's board was expected to meet Monday, according to Italian press reports.

To pull off their merger, Deutsche Telekom and Telecom Italia would first have to win the approval of the Italian and German governments and the European Commission's antitrust department.

The statement was in apparent response to a request by Italian stock market regulator Consob, which asked Telecom to state whether it was in merger talks with the German company.

Also Sunday, Deutsche Telekom declined to comment on a report in the German financial Handelsblatt that the two companies planned to fold their stock into a new telecommunications holding company on a 60-40 percent basis.

The combined company would be worth nearly $200 billion. Deutsche Telekom has a market capitalization of about $117 billion, far bigger than Telecom Italia's $77 billion.

The Italian prime minister's office has said, however, that an eventual accord must be on an equal footing.

Italian Premier Massimo D'Alema said Monday that any merger between Telecom Italia and Deutsche Telekom would require a privatization of the German company.

"We cannot imagine that a privatized Telecom Italia may merge with a company whose main shareholder is the German state," D'Alema told reporters. Deutsche Telecom is 72 percent-owned by the German government.

Telecom Italia was privatized in October 1997. The government owns 3.4 percent of the company, but it has a "golden share," which gives it a veto power over the acquisition of more than three percent of the shares of the telecommunications company.

Telecom Italia, currently the target of a hostile takeover bid by Olivetti SpA, has been actively seeking alternatives.

Olivetti proposed in February to buy Telecom Italia for $58 billion and later sweetened its bid to $65.2 billion.

Olivetti's tender offer prospectus is expected to be approved by Consob within the next two weeks.