Advisory Group on PrivatisationThirteenth Plenary Session

Privatisation, Capital Market Development and Pension Funds

Italian Privatisations and Corporate Governance Issues

in the New Euro Environment

Paris, 21-22 September 1999

Pietro Ciucci - General Manager - IRI Spa

Patterns of change in corporate finance and their impact on the governance

and organisation of enterprises

Fig.1 - INTEREST RATES CONVERGENCE

Euroland

Source: IRI - Economic Research Department /Bloomberg Financial Markets.

29/0

1/93

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

31/0

5/93

30/0

9/93

31/0

1/94

31/0

5/94

30/0

9/94

31/0

1/95

31/0

5/95

29/0

9/95

31/0

1/96

31/0

5/96

30/0

9/96

31/0

1/97

30/0

5/97

30/0

9/97

30/0

1/98

29/0

5/98

30/0

9/98

29/0

1/99

31/0

5/99

RIBOR 1M (ITA) PIBOR 1M (FRA) FIBOR 1M (GER)LIBOR 1M (UK) MIBOR 1M (SPA)

SHORT TERM LONG TERM

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

gen-

93

mag

-93

set-9

3

gen-

94

mag

-94

set-9

4

gen-

95

mag

-95

set-9

5

gen-

96

mag

-96

set-9

6

gen-

97

mag

-97

set-9

7

gen-

98

mag

-98

set-9

8

gen-

99

mag

-99

GOVT 10YR (ITA) GOVT 10YR (UK) GOVT 10YR (FRA)

GOVT 10YR (DH) GOVT 10YR (SPA)

Fig.2 - YIELD CURVES Italy vs Germany

Source: IRI - Economic Research Department / Bloomberg Financial Markets.

2,5

3,5

4,5

5,5

2

3

4

5

3MO 6MO 1YR 2YR 3YR 4YR 5YR 6YR 7YR 8YR 9YR 10YR

ITA GOVT (BTP) 5/1/98 GER GOVT 5/1/98

ITA GOVT (BTP) 9/7/99 GER GOVT 9/7/99

7/9/1999

ECOFIN 1/5/1998

2,5

3

3,5

4

4,5

5

5,5

3MO 6MO 1YR 2YR 3YR 4YR 5YR 6YR 7YR 8YR 9YR 10YR

ITA GOVT (BPT) 1/5/98 GER GOVT 1/5/98

ITA GOVT (BPT) 11/3/99 GER GOVT 11/3/99

9/4/1999

ECOFIN 1/5/1998

0

50

100

150

200

250

300

350

mar

-94

giu-9

4

set-9

4

dic-9

4

mar

-95

giu-9

5

set-9

5

dic-9

5

mar

-96

giu-9

6

set-9

6

dic-9

6

mar

-97

giu-9

7

set-9

7

dic-9

7

mar

-98

giu-9

8

set-9

8

dic-9

8

mar

-99

giu-9

9

NIKKEI 500 (JAP) DOW JONES INDUSTRIAL (US) FTSE EUROTOP 100 (EU)

Source: IRI - Economic Research Department / Bloomberg Financial Markets

Fig.3 - STOCK MARKETS GROWTH PERFORMANCES

0

50

100

150

200

250

300

FTSE 100 (UK) CAC 40 (FRA) DAX (GER)

MIBTEL (ITA) MADX (SPA)

Usa - Europe - JapanMajor European Markets

Fig.4 - KEY FIGURES OF EUROLAND(1998; billion US$)

Source: IRI - Economic Research Department / DRI Standard & Poors data

EU - 11 USA Japan

Population (million) 289 270 126

G D P 7012 8511 3782

Gross National Saving 1395 1481 1176

Government Bonds (*) 3812 6663 2821

Corporate Bonds (*) 1799 2955 906

Stock Market Capitalisation (*) 3764 11421 3894(UK included) (6084)

(*) 1997

Euro-denominated bond issuance ($ bn)

Fig.5 - THE RISE OF THE EURO CORPORATE BOND MARKET

Source: Bank of America

0

5

10

15

20

25

30

1995 1996 1997 1998 1Q 99

Other13%

AAA42%

AA24%

A21% A

29%

Other25%

AAA23%

AA23%

International Corporate Bond issues 1998

International Corporate Bond issues 1Q 1999

Fig.6 - THE EURO CORPORATE BOND MARKET

Rating features

Source: Bank of America

Fig.7 - EUROPEAN FUND MANAGEMENT INDUSTRY(1997; billion US$)

Source: IRI - Economic Research Department / Bank for International Settlements, 68th Annual Report.

Total Insurance Pension Insurance (%) Pension (%)

Germany 1263 690 65 508 55 5 40France 868 581 72 215 67 8 25Holland 667 243 362 62 36 54 9Italy 190 100 43 47 53 23 25Spain 167 107 13 47 64 8 28Belgium 160 17 7 136 11 4 85Ireland 111 18 6 87 16 5 78Portugal 100 3 2 95 3 2 95Finland 100 8 7 85 8 7 85Austria 89 1 3 85 1 3 96EMU 11 3715 1768 580 1367 48 16 37

Other non-EMU 2606 1091 1219 296 42 47 11

Europe 6321 2859 1799 1663 45 28 26

US 13467 3624 5642 4202 27 42 31Japan 3346 2323 525 499 69 16 15Rest of world 600 284 179 137 47 30 23

Total 23734 9090 8144 6500 38 34 28

Retail (%)Country Retail

Source: Rapporto IRS sul mercato azionario, 1999

Fig.8 - HOUSEHOLDS’ FINANCIAL ASSETS Share (in %) managed by institutional investors (1997)

53

43,6

33,830,5 28,2

24,5

0

10

20

30

40

50

60

UK USA Japan Germany France Italy

Fig.9 - COMPANIES’ CAPITAL STRUCTURE Usa, Japan, Euroland (1998)

Source: projections IRI - Economic Research Department on National Accounts.

USA

23%

48%

29%

Corporate bonds Equity Bank debt

Japan11%

20%

69%

Corporate bonds Equity Bank debt

Euroland10%

28%

62%

Corporate bonds Equity Bank debt

Fig.10 - MODELS OF EXTERNAL CAPITAL MARKETS

Source: M.E.Porter in K.Ohmae (ed.),”The Evolving Global Economy”, (1998)

Dedicatedcapital

Orientedto stable

relationships

Concentratedshareholdings

Sell or Buy decisions relatively

independent from speculative

Stableshareholders

Externalinformation

Fluidcapital

Orientedto transactions

Fragmentedshareholdings

SpeculativeSell or Buy

decisions

Non-stableshareholders

Non influentialshareholders

Insideinformation

Anglo Saxon Model(Usa - UK)

Renan Model(Ger - Jap)

Influentialshareholders

Bidder Contestfor the 5 th

Operator's LicenceOperator's Licence

Bidder Contestfor the 4 th

Operator's Licence

Bidder Contestfor the 3 rd

Operator's Licence

Bidder Contestfor the 2 nd

OMNITEL(OLIVETTI)

(Winner)

UNITEL(Bidder)

WIND(Winner)

PICIENNE(Bidder)

TELON(Bidder)

ENEL 51% DEUTSCHE TELEKOM 24,5% FRANCE TELECOM 24,5%

BRITISH . TELECOM MEDIASET ENI-ITALGAS BNL INA (NOR) TELENOR

AUTOSTRADE 27% BELL CANADA 27% (HK) DISTACOM 22% COFIRI 7,5% UNICREDITO 7% ALTRI 9,5%

TIM(TELECOM ITALIA)

(Incumbent)

TELECOM ITALIA 60,3% IMI-S.PAOLO 2,4% B.D'ITALIA 1,8% EUROCASSE SIM 1,3%(GIA) NOMURA INT.1,1% SOGERSEL 0,8%(USA) TIIACREFINV.0,8%(USA) THE ROYAL B. 0,7%

(*)

OLIMAN [OLIVETTI 75% => 50,1% (GER) MANNESMANN 25% => 49,9%]

(USA) BELL ATLANTIC

(*)

FININVEST

BLUTEL(Winner)

1 st Operator

PLANETWORK(Bidder)

To be launchedin Dec.99

AUTOSTRADE SPA 28% BRITISH TELECOM 21% DISTACOM 10% ED.HOLDING (Benetton) 10% MEDIASET 10% BNL 7% ITALGAS (Eni) 7%

CALTAGIRONE 7%

ORSI CARBONE KPN (OLA)

(*) Ownership structure before Telecom take-over by OlivettiSource: IRI - Economic Research Department / Ministry of Communications (updated march 1999)(*) Ownership structure before Telecom take-over by OlivettiSource: IRI - Economic Research Department / Ministry of Communications (updated march 1999)

Fig.11 - MOBILE NETWORK OPERATORS IN ITALY

The map of existing licenses

National

Local

2

INFOSTRADA1

TELECOMITALIA

3

ALBACOM4

WIND6

NUOVA SOCIETA'DI TELECOM.

7

AUTOSTRADETELECOM.

5RSL COM ITALIA

8WORLDCOM (USA)

9COLT

TELECOM

(Milano 10020) (Milano)

10TELEGLOB

EITALIA

11TISCALI

15HERMES EUROPE

RAILTEL

14GLOBAL

ONE

COMM.

13SKIPPER

TELECOM.

12CITYTEL

16UNISOURCE

CARRIER

SERVICES(Mi-Pa-Tp-Rm) (Mi-Rm-Bo-Pd) (Mi-To-Rm)(Milano) (Milano)(Sar-Mi-Rm) (7 città)

27TELECOMPLUS INT.

(Lazio)

OLIMAN [OLIVETTI 75% => 50,1% MANNESMANN (GER) 25% => 49,9%]

FF.SS.

(*)

JOINT VENTUREBRITISH TELECOM-BNL 45,5%MEDIASET 15%ENI-SNAM 35%Others 4,5%

ENEL 51%DEUTSCHE TELEKOM 24,5%FRANCE TELECOM 24,5%

MIN.TESORO 3,4% B.CA D'ITALIA 2,3% IMPIEGATI 2,2% (USA) NOMURA INT. 1,8% IMI-FIDEURAM 1,8% (USA) JANUS CAPITAL 0,8% FONDIGEST 0,8% (USA) CAPITAL RISK 0,6% (*)

RSL COM USA

[METRO HOLDINGS OF SWITZERLAND 12,0%BUKFENC 5,5%CORAL GATE 5,3%TARLOVSKY 3,5%BILDIRICI 2,1%]

SNAM-ENI AUTOSTRADE SpA

[IRI 86%]

(UK) COLT.INC. 25,3%(USA) FIDELITY INV. 21,1%(USA) BANK OF NY 16,0%(USA) FIDELITY INTL. 4,7%(USA) THE CAPITAL GROUP COMPANIES I. 3,4%

SORU 90%KIWI 10% (Piol e Novick)

TELEGLOBECANADA [BCE 24% SIROIS 17% Others 59%]

DURANTE DEUTSCHE TELEKOM 33,3% FRANCE TELECOM 33,3%SPRINT 33,3%

GLOBALTELESYSTEMS 50%HIT RAIL 50%

KPN (OlA) 33,3%SWISSCOM 33,3%TELIA 33,3%

AEMCOLT TELECOM (UK)

1055 10681077 1073

30S.I.T.

29FCI

CARRIER SERVICES

(USA) FIDELITY 8,1%(USA) ALLIANCE 3,3%(UK) BARCLAYS B. 2,9%(USA) BANKERS T. 1,6%(USA) TIAA-CREF 1,5%(USA) AM.CE.CO. 1,4%(USA) THE VANG.G. 1,4%

17SWISSCOM

S.p.A

(Mi)

(Mi-Rm-Pa) (11 città)

28LONG

DISTANCE INT.LTD

18CABLE &

WIRELESS

19TELEFONICA

(7 città) (Mi-To-Rm-Na)

22WORLDLINK

S.P.A.

21TRANSWORLD

COM.

20PLANETWORK

IT.

23T.M.I.

(28 città)(10 città) (Mi-Rm-Ge-Na)

25MED 1 ITALY

26S.M.T.

24SPAL

TELECOMMU-NICATIONS (Mazara del

Vallo) (Roma)(30 città)

31ONIONITALIA

(9 città)

32VIATEL GLOBALCOMM.

33SISTER

S.p.A.

(26 città) (Imola)

(UK) CABLE & W. 52,6%(USA) NINEX CO. 18,5%(CAN) BELL CAN. 14,2%(UK) MERCURY A.

SWISS CONF. 51,5%

(SPA) B.BILBAO V. 6,9%(SPA) ARGENTARIA 5,2%(SPA) CAJA DE AHORROS Y PENSIONES DE BARCELONA 5,0%(SPA) B.SANTANDER 2,0%

(Mi-Rm-To)

(5 città)

(*) Ownership structure before Telecom take-over by OlivettiSource: IRI - Economic Research Department / Ministry of Communications (updated march 1999)

Fig.12 - FIXED NETWORK OPERATORS IN ITALY

The map of existing licenses

Fig.13a - PRIVATISATIONS’ PROCEEDS BY TYPE OF OFFERING

(Five major European countries, U$ billion, 1981-98)

Source: IRI - Economic Research department / IFR-Thomson Privatisation International

135.3

18.4

59.9

22.7

63.1

1.6

21.4

23.0

38.2

4.5

0

20

40

60

80

100

120

140

160

UK Italy France Germany Spain

Public Offers Private Sales

Fig.13b - PRIVATISATIONS IN EUROPE(Five major European countries, 1992-98)

Source: IRI - Economic Research Department / IFR-Thomson Privatisation International

FINANCIAL TECHNIQUES USED

Million US$

(1998 prices) Public Offers % Private Sales % Total %

FRANCE 49,453 26,6 1,452 2,4 50,905 20,6

GERMANY 17,971 9,7 20,995 34,3 38,966 15,8

ITALY 57,267 30,8 21,987 35,9 79,254 32,1

SPAIN 36,572 19,7 4,336 7,1 40,908 16,6

UNITED KINGDOM 24,381 13,1 12,418 20,3 36,799 14,9

TOTAL EUR-5 185,644 100 61,188 100 246,832 100

(in %) (75,6%) (24,4%) (100%)

Fig.14 - EVOLUTION OF THE ITALIANREGULATORY FRAMEWORK

Law 359/1992 CIPE 30.12.92 CIPE 15.10.93 Law 474/1994 Law 481/1995

Iri, Eni, Ina, Eneltrasformed in s.p.a. (p.l.c.)

Determination of net assets and eva- luation procedures

Share conferred to Treasury

Power to Trea- sury for the pre- paration of a Reorganisation plan

Start-up of proce- dures for dismis- sal of entire hol- ding in Enel, Ina, Comit, Imi, Credit, Stet, Agip

Setting up of the Privatisations Commitee

Acceleration of procedures for Credit, Comit e Imi

Regulation of privatisation procedures: * public offers * public tenders * private sales

Discipline of pro- cedures for: * determination of participation value * selection of Advisor and Global Coord.

Possibility of: * Special powers * List vote and limits to share ownership * Partly Paid * Authorities for public utilities

Obligation, in case of legal or effective control on a company pri- vatised through public offer, of: * making public parasocial agreements * launching public offers

Setting up of Authorities for Tlc, Gas & Electricity

Obligation for the Government to define moda- lities for public utilities’ privatisa- tion and conse- quent expression of an advice by Parliament

Gvmt decree: redefines the perime- ter of application of L.474; special tem- porary powers main- tained only for pu- blic order, health, defence

New law proposal: powers to the Government for: * Privatisations’ regulation reordering * Acceleration of dismissal processes

Measures supported by EU Commission which opposes the Golden Share’s use except extraordi- nary cases

Gvmt Decree(may 1999)\

Fig.15a - Italy: equity base by typology of investors

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Foreign

Capital

24%

Domestic

Capital

76%

Market

33%

Institutional

Investors

37%

CGSS

30%

INSURANCE 31%

PENSION FUNDS 7%

MUTUAL FUNDS 62%

BANKS 40%

MUTUAL FUNDS 30%

INDUSTRY 13%

INSURANCE 17%

Source: projections IRI - Economic Research Department on Technimetrics/Bloomberg Financial Markets data (April 1999)

Fig.15b - France: equity base by typology of investors

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Foreign

Capital

24%

Domestic

Capital

76%

Market

37%

Institutional

Investors

25%

CGSS

(noyau dur)

38%

INSURANCE 63%

PENSION FUNDS 8%

MUTUAL FUNDS 28%

BANKS 16%

MUTUAL FUNDS 29%

INDUSTRY16%

INSURANCE 30%

EMPLOYEES 9%

Source: projections IRI - Economic Research Department on Technimetrics/Bloomberg Financial Markets data (April 1999)

Fig.16a - PRIVATISATIONS’ CONTRIBUTIONTO THE ITALIAN STOCK MARKET GROWTH

(January 1993 - August 1999)

Source: IRI - Economic Research Department 1999

STOCK MARKET CAPITALISATION COMIT DAILY EXCHANGES ON CAPITALISATION (in % of GDP) INDEX THE STOCK MARKET

2.1.1993 116 Bil. US$ 11.2% 451 276 Mil. US$ (average ‘93)

27.8.1999 586 Bil. US$ 50.3% 1507 2,100 Mil. US$ (average ‘98)

Italian stock market still relatively limited, but capable of further significant development (Ita 37% of 1998 GDP; Ger 44%, Fra 57%, Spa 61%, Gbr 155%; Jap 56%; USA 113%)

Recent estimastes by CONSOB: Number of companies potentially able to be listed: 450/550 Capitalisation potential: at least 106 billion US$ (19% of present capitalisation)

Fig.16b - PRIVATISATIONS’ CONTRIBUTIONTO THE ITALIAN STOCK MARKET GROWTH

(January 1993 - August 1999)

Source: IRI - Economic Research Department 1999 / Consob, Annual Report 1997

CONTRIBUTION OF ITALIAN PRIVATISATIONS 51.8% of 1/1/93 capitalisation 10.2% the present capitalisation

CONTRIBUTION OF IRI PRIVATISATIONS 20.9% of 1/1/93 capitalisation 4.1% of present capitalisation

Fig.17 - THE ITALIAN STOCK MARKET(ROE - Long term interest rate Spread)

Source: IRI - Economic Research Department / Euromobiliare

-10,0

-5,0

0,0

5,0

10,0

15,0

1993 1994 1995 1996 1997 1998 1999* 2000*

ROE Long term interest rate Spread

* expected

%

Fig.18a - THE HIT PARADE OF INTERNATIONAL STOCK MARKETS(Capitalisation and number of listed companies)

5,068

3,525

3561,433

1,097

243

276 268

425

Source: International Federation of Stock Exchanges

680

Number of listed companies Market capitalisation

0

500

1,000

1,500

2,000

2,500

3,000

NYSE

Nasda

q

Tokyo

Lond

on

Frank

furt

Paris

Zurich

Amste

rdam

Mila

no

Toron

to

Mad

rid

Hong

Kong

Stock

holm

Bruss

els

2,669

1,8902,423

484

10,271

Billion US$ - December 1998

29,1

10,7

6,23,4 2,5 2,1 0,9

0

5

10

15

20

25

30

35

USA UK Germany Japan France Italy Spain

Fig.18b - STOCK EXCHANGES’ DAILY TURNOVER(billion $, average 1998)

Source: Rapporto IRS sul mercato azionario, 1999

0

2000

4000

6000

8000

10000

12000

14000

0

1000

2000

3000

4000

5000

6000

7000

Volume (mln. of shares) UKX Index

0

100

200

300

400

500

600

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Volume (mln. of shares) CAC Index

0

5000

10000

15000

20000

25000

0

5000

10000

15000

20000

25000

30000

Volume (mln. of shares) MIBTEL Index

Fig.18c- MAJOR EUROPEAN STOCK EXCHANGESPrice trends and daily turnover (mln. of shares)*

* lhs: monthly turnover; rhs: prices indexSource: IRI - Economic Research Department / Bloomberg Financial Markets

0

200

400

600

800

1000

1200

1400

1600

1800

31/0

1/94

31/0

3/94

31/0

5/94

29/0

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30/1

1/94

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9/95

30/1

1/95

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30/0

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1/97

30/0

1/98

31/0

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5/98

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30/0

9/98

30/1

1/98

29/0

1/99

31/0

3/99

31/0

5/99

30/0

7/99

0

1000

2000

3000

4000

5000

6000

7000

Volume (mln. of shares) DAX Index

31/0

1/94

31/0

3/94

31/0

5/94

29/0

7/94

30/0

9/94

30/1

1/94

31/0

1/95

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5/95

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9/95

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1/95

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1/96

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30/0

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1/96

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1/97

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1/98

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7/94

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1/94

31/0

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31/0

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1/95

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1/97

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3/98

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1/97

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1/98

31/0

3/98

29/0

5/98

31/0

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30/0

9/98

30/1

1/98

29/0

1/99

31/0

3/99

31/0

5/99

30/0

7/99

Fig.19 - PRIVATISATIONS IN ITALY (1992 - 98)

The role of IRI

Source: IRI - Economic Research Department / IFR-Thomson Privatisation International

0

10

20

30

40

50

TREASURY IRI OTHERS

Public offers Private sales

5,817

17,972

37,530 13,865

1,765

2,305

Million US$ (1998 prices)

Source: IRI Spa

Fig.20 - IRI GROUP PRIVATISATIONS (1992-98)

(million U$, 1998 prices)

* Minority shares and real estate assets

Privatisations Debts Others * Dismissals Total

(A) (B) (C) (D=A+C) (E=A+B+C)

IRI S.p.A.

Total 1992-98 20,819 9,538 2,099 22,918 32,456

SECTOR HOLDINGS

Total 1992-98 3,240 1,713 5,679 8,919 10,632

IRI GROUP (TOTAL)

Total 1992-98 24,059 11,251 7,778 31,837 43,088

Fig.21 - IRI GROUP PRIVATISATIONS (1992-98)

(Million US$, 1998 prices)

Source: IRI - Economic Research Department

Debts

Others Privatisations

Sector

Holdings

IRI Spa

Privatisations Debts Others Sector Holdings IRI Spa

7,77824,059

11,251 32,456

10,632

Source: IRI’s Administration and Accounting Department

Fig.22 - IRI Spa: PROFITABILITY PERFORMANCE(Million $)

* Net of extraordinary revenue items

-3,440

-2,767

-3,501

-5,886

-730

-846

-648

-199

-1,544

106

-302

2,977

-20

1,818

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

1992 1993 1994 1995 1996 1997 1998

Operating Income* Net Income

Fig.23 - THE MIXED MODEL - PRIVATISATIONS IN THE PIPELINE

The competitors for the hard core

Present stock

market capitalisation

889 mil Euro *

AEROPORTI

DI ROMA S.p.A

AUTOSTRADE S.p.A

ED HOLDING (BENETTON) 16%

• Fondazione Crt 4%• Unicredito 2%• Ina 2% • Acesa (Autos. Catalane) 4%• Felsinea (Guidalb.Guidi & C.) 2%

ED HOLDING (BENETTON) 16%

• Fondazione Crt 4%• Unicredito 2%• Ina 2% • Acesa (Autos. Catalane) 4%• Felsinea (Guidalb.Guidi & C.) 2%

56% public offer

14% already on

the stock market

45,8% already on

the stock market

51,2% hard core

30%hard core

• GRUPPO CIR

(De Benedetti)

• British Airports

Authority (Gbr)

• Banca di Roma

• GEMINA

• Falck• Impregilo• BC Partners• Italpetroli• Mc Donald’s

• HERMES

• Ed. Holding (Benetton)• Pirelli• Caltagirone• San Paolo IMI• Ras

• ABN Amro (Neth)• Schiphol

(Amsterdam Airport) (Neth)

• Frankfurt Airport (Ger)

• B.Pop.Milano

• DOUGHTY HANSON (Gbr)

• DOUGHTY HANSON (Gbr)

• BARCLAYS (Gbr)

• BARCLAYS (Gbr)

• MC DONALD’S• MC DONALD’S

• ITT - Sheraton (Usa)• ITT - Sheraton (Usa)

• AUTOS. TO-MI (Gavio)• AUTOS. TO-MI (Gavio)

• BRISA (Portuguese Highways)• BRISA (Portuguese Highways)

• MACQUARIE (Bank) (Asl)• MACQUARIE (Bank) (Asl)

Present stock

market capitalisation

4.526 mil Euro *

3% local authorities

• SEA (Milano’s airports)

* 4 Sep.1999 - Source: various press releases and articles. IRI has not yet officially announced the names of bidders. Interest for AdR has been expressed by 5 groups of investors and 11 single entities; for Autostrade preliminary offers by 2 groups of investors and 4 single entities.

STREAM FINSIEL ITALTELSIRTI

TELECOM ITALIA

TIM

TelecomItalia Mobile

Nuova

Telespazio

STET

International

50%77,2% 52% 100% 100% 88% 60,4%

12%

Telecommunication Services I.T.

(Software & Systems)

Manufacturing and Equipment Multimedia

Fig.24 - THE PRIVATISATION OF TELECOM ITALIA (Oct. 1997)

The Group at a Glance

Net sales US$ 26.2 Bn

Operating income US$ 5.3 Bn

Net income US$ 2.2 Bn

Shareholder equity US$ 21.5 Bn

Long term debt US$ 5.6 Bn

Fig.25 - THE PRIVATISATION OF TELECOM ITALIA (Oct. 1997) Key figures - 1998

Ina0,5

Alleanza0,4

Imi0,75

Credito Italiano0,7

Credit Suisse Group0,67

Generali0,6

Compagnia S.Paolo

0,6

Ifil0,6

Comit0,5

Fondazione Cariplo

0,5

Montepaschi0,5

Rolo Banca0,3

Fig.26 - PRIVATISATION OF TELECOM ITALIA (Oct. 1997) Core Group of Stable Shareholders (6,6% of share capital)

Foreign investors53%

Market retail21%

Italian investors26%

Fig.27 - PRIVATISATION OF TELECOM ITALIA Shareholder Structure pre-tender (March 1999)

(*) It was 6,6% in Oct.1997, at the moment of the privatisation

Imi - S. Paolo 1,4%

Generali 1,1%

Ina 0,9%

Credit Suisse (SVI) 0,7%

Unicredito Italiano 0,7%

Alleanza 0,6%

Ifil 0,6%

Banca Intesa 0,5%

Comit 0,5%

Mps 0,5%

Rolo 0,3%

Total (*) 7,8%

CGSS

State Street (USA) 1,9%

Nomura (GIA) 1,8%

Merrill Lynch (USA) 1,1%

Bankers Trust (USA) 1,0%

F&F Deutsche B. (GER) 0,8%

Credit Suisse (SVI) 0,7%

Calpers (USA) 0,7%

Janus (USA) 0,5%

Standard Life (USA) 0,4%

Bernstein (USA) 0,4%

TIAA Inv. (USA) 0,3%

Rowe (USA) 0,3%

Schroder (USA) 0,3%

Santander (SPA) 0,3%

Others 42,6%

N.foreign funds (1335)

Foreign institutional investors

Treasury 3,5%

Bank of Italy 2,3%

Employees 2,2%

Core group

shareholders 7,1%

Others 10,9%

N.italian funds (99)

Italian Istitutional investors

Fig.28 - PRIVATISATION OF TELECOM ITALIA (Oct.1997)The Core Group of Stable Shareholders (CGSS) - A SWOT analysis

Golden Share: potential fall back to public ownership

The pathology of contendibility

THREATS

STRENGTHS

• Board representation: the switch from public capital to private capital dominance

• Gradual introduction of private management methods and styles

Golden Share: it made possible privatisation of

large public utilities

WEAKNESSES

• CGSS relatively small and fragmented• Weakness of alliances• Lack of hierarchy in CGSS• Negative impact of CGSS on foreign stakeholders

due to cultural gap• Potential conflict among Board members

Golden Share: reduced presence of foreign shareholders

Golden Share: more open attitude to internationalisation and globalisation

The physiology of contendibility

OPPORTUNITIESContendibility

Golden Share Golden Share

(a) Assuming all Tecnost minority shareholders participate in the rights issue

Tecnost Minority

shareholders (a)2.4%

27.1%

70.5%

51.02%

48.98%

Telecom Italia tendering

shareholders

Olivetti

Tecnost

Telecom ItaliaTelecom Italia

non-tenderingshareholders

Fig.29 - OLIVETTI’S TENDER OFFER Post-tender Shareholder Structure of Telecom Italia

Olivettishareholders

Telecom Italia tendering

shareholders

Olivetti

BanksTecnost

7.9 Euro bnProceeds from Sale of Oliman

Mannesman

2.6 Euro bnRights Issue12 Euro bn

Rights Issue

18.5 Euro bnRights Issue

6.5 Euro bnSyndacated loan

Fig.30 - OLIVETTI’S TENDER OFFER The cash component