(2 of 4)
The advent of the euro has further heightened competition by eliminating the currency risk for investors, so that French mutual funds can safely invest, for example, in German companies for the first time. But another important effect of the same development is that European companies are all coming under increased pressure to improve their share performance for international shareholders regardless of local circumstances--even those that don't face global competition. "There's tremendous pressure from institutional investors who have seen the positive effects of shareholder power in the U.S. and are demanding similar moves in Europe," says Manfred Kets de Vries, a management specialist at the INSEAD business school outside Paris.
The promise of increased savings to shareholders plays a key role in the precedent-setting battle between Olivetti and Telecom Italia. Franco Bernabe, who took over as chief executive of the recently privatized Telecom only last November, promised to cut costs $560 million a year, including a staff cut of 40,000 employees, nearly a third of the company's total, if shareholders reject the Olivetti bid. Olivetti in turn promised to cut the staff by 12,000 and to spin off noncore operations if its $58 billion plan, among the largest hostile takeovers in history, is accepted. It's easy to forget that the most famous takeover battle of all time, R.J. Reynolds' 1988 bloody leveraged buyout of Nabisco, was valued at a paltry $25 billion. (The biggest merger of all time, to put things in perspective, is still in the process of creation: the announced marriage between Mobil and Exxon, which is estimated to be worth at least $80 billion.)
Indeed, this pace of dealing has not been seen since the 1980s. "Even years down the road, we shall look back on the first quarter of 1999 as the turning point in Italian finance, when we started on the road to change and moved much closer to the American model," says Giovanni Grimaldi, fund manager at investment company Primegest in Milan.
Italy is hardly the only place where this is happening. The consolidation wave in banking began on Jan. 15 when Spain's Banco de Santander announced an $11.3 billion merger with crosstown rival Banco Central Hispano. This was followed by the $18 billion bid by Societe Generale, one of France's largest retail banks, with Paribas, the country's leading investment bank. During a sleepy Italian weekend in March, Unicredito, based in Milan, launched a $16 billion bid to buy northern rival Banca Commerciale Italiana, perhaps Italy's most prestigious banking brand. Only a few hours later, San Paulo-IMI, which had become the country's largest commercial bank through an earlier merger, announced a $9.7 billion offer for Banca di Roma, which has a strong retail network in Italy's central region.