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Wednesday, May 5, 1999 Published at 16:37 GMT 17:37 UK

Business: The Company File

Telekom on prowl again

Telephone merger still on line

Deutsche Telekom's chief executive Ron Sommer is confident that the company's controversial merger with Telecom Italia will go ahead.

Mr Sommer spoke at the start of a continental roadshow to drum up support for the deal. The company also unveiled plans to raise up to $11.45bn by issuing new shares, to help finance a further three European acquisitions.

The share issue would reduce the German government's stake from 74% to around 65%, although it is unlikely that this will remove Italian fears on German government influence over a merged group.

[ image: Deutsche Telekom's Bonn HQ]
Deutsche Telekom's Bonn HQ
Earlier on Wednesday, Italy's Communications Minister Salvatore Cardinale warned again that Rome was ready to use its golden share to block the Telecom-Telekom alliance.

"Let's hope (the merger) happens but on condition of parity and privatisation of Deutsche Telekom ... these are the conditions and without them the government cannot support the plan," Mr Cardinale told reporters.

Nonetheless, according to Mr Sommer the industrial logic of the union between the two former state monopolies is "absolutely pertinent and convincing".

And he said that a third party may also be brought in to the telecommunications group at a future stage.

Talks with France Telecom regarding a merger or at least joint initiatives were held last year but had broken down without agreement, reporters were told.

Three European targets

"We've never hidden the fact that our union is only the first step. We will inform the public at the appropriate time," said Mr Sommer at a news conference.

"We expect that we will be able to announce one acquisition this year and two more in 2000," a Deutsche Telekom spokesman told reporters afterwards.

He declined to say which companies Telekom is eyeing, but he said all three were based in Europe.

Earlier this week, the Wall Street Journal Europe had reported that Deutsche Telekom and Telecom Italia were in talks with a US group to strengthen the merger.

The planned merger has attracted criticism from the Italian government, which retains a veto over any deal as a result of it retaining a 3.4% stake and a so-called 'golden share' in Telecom Italia.

The deal also upset France Telecom which despite being having a strategic alliance with the German company was not consulted.

Euroland special offer

Part of the spin put on the Italo-German deal is that it would create a European telecoms giant.

To add weight to this idea the share issue will be the first ever pan-European issue with investors in all euro countries able to buy shares at a discount.

"This approach breaks new ground in Europe and signals a new way forward at a time when European states are growing together within the framework of economic and monetary union," said Mr Sommer.

Deutsche Telekom shares fell 3.4% following the news that it plans to issue up to 286m new shares at or near market price in late June.

This was an incentive to sell now in order to push the price as low as possible for the offering rather than negative sentiment on the arrangement, said one analyst.

The German-Italian tie-up began as a defensive measure after Italian telecoms firm Olivetti launched a hostile bid for its former state owned rival.

If it went ahead a merged group would have 300,000 employees and sales of $71bn. It could boast 109 million customers across 22 counties.

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