Tronchetti's latest pre-nup

24 December 2002 By Hugo Dixon

The Pirelli boss s deal to shore up control of Telecom Italia has involved giving his new partners a getout in the event of a divorce. Still, that s better than Pirelli pumping in more cash. It couldn t afford to: its net asset value is barely above E200m.

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Olimpia, the holding company through which Pirelli controls Telecom Italia, will pay its new merger partners a premium in the event that they break the company up.

Last week Hopa – a holding company controlled by Emilio Gnutti, a financier – agreed to merge Holy, another holding company, into Olimpia. In return, Hopa will receive a 16% stake in Olimpia. Olimpia controls Olivetti which, in turn, controls Telecom.

Hopa and Olimpia's other shareholders plan to sign a pact that will last three years. During that period it will only be possible to break up Olimpia in extraordinary situations such as if: its debt exceeds its equity or it disposes of its stake in Olivetti or it merges Olivetti with a company it doesn't control.

If Olimpia is split, Hopa would receive a proportionate share of Olimpia's assets plus a premium. Olimpia's assets consist of 3028m Olivetti shares and convertible bonds. A 16% share of those is 484m shares and convertibles.

The premium payable will depend on the circumstances of any split. If an arbitrator concludes that Olimpia is to blame, a premium of E0.6 per Olivetti share will be payable. Otherwise, the premium will be E0.35.

In the event that a split occurs because the shareholders' agreement is not renewed after three years, the premium will be either E0.35 or an amount determined by two investment banks – whichever is higher.

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