Pirelli Buys 9.54% Stake in Olimpia, Upgrades Stake To 80%"

MILAN (Dow Jones) - Pirelli said Wednesday it paid EUR1.17 billion for two 4.77% stakes in Italian holding Olimpia, which controls Telecom Italia, under previous option agreements made with Banca Intesa and UniCredit.

After the purchase, Pirelli's stake in Olimpia will rise to 80%. Edizione Holding, a company controlled by the Benetton family, will own the remaining 20%.

In a statement, Pirelli said the buyout of the two stakes was financed by existing credit lines and the impact on Pirelli's net debt has been of EUR1.04 billion.

Pirelli, which also used available cash for the buyout, confirmed that its net debt will be at EUR2 billion at the end of 2006.

The company could come under pressure to consolidate Olimpia once its stake is at 80%.

Another option for Pirelli could be writing down the high value at which it is carrying Telecom Italia shares, which have fallen 50% since Pirelli took over the phone company in 2001.

Italy's market regulator Consob said is was "closely watching" Telecom Italia after the telecoms company announced a controversial plan to spin-off its fixed-line and mobile assets into two separate units in September.

If Pirelli decides to write down its shareholding to market prices, that would involve a capital loss and would stretch Pirelli's debt-to-equity ratio.

As the two banks exit Olimpia, the Italian press is speculating that local financial institutions could be ready to step in to help ensure national control of Italy's former telecoms monopoly.

Telecom Italia has been in the spotlight in recent weeks after it unveiled a surprising strategic shift away from fixed-mobile convergence and toward the future breakup of its mobile unit and local-loop network.

The plan was also aimed at reducing debts now totaling around EUR41.3 billion - a level the company expects to reduce to EUR38 billion by the end of the year.

Telecom Italia's new plan was widely seen as a precursor to a sale of its mobile unit TIM. The resulting clash with government prompted Marco Tronchetti Provera to resign as chairman, naming Guido Rossi as his replacement.

Tronchetti, who remains chairman of Pirelli, is also Telecom Italia's controlling shareholder.

-By Giada Zampano, Dow Jones Newswires; +39 02 58219907; giada.zampano@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 4th October 2006