FOR IMMEDIATE RELEASE
CLAYTON DUBILIER AND CISCO TO BUY 81% OF ITALTEL
By Yaroslav Trofimov and Scott Thurm 07/03/2000 The Wall Street Journal Page A3 (Copyright (c) 2000, Dow Jones & Company, Inc.)
ROME -- Private-equity fund Clayton, Dubilier & Rice Inc. joined with Cisco Systems Inc. and other investors to buy 81% of Italtel , a telecommunications-equipment maker, from Italy's former monopoly phone company, Telecom Italia SpA.
The investment group agreed to pay about 800 million euros, ($761 million) or 1.3 times 1999 sales, for the stake and said it plans an "early" initial public offering by Italtel . The deal, which was widely expected after word of the talks first got out in March, will give Clayton Dubilier 50.1% of Italtel and management control. Cisco and Telecom Italia each will own 19%. Investment firms Advent International and Brera Capital will own the remaining 11%.
The announced sale helps fulfill a pledge last year by Telecom Italia Chief Executive Roberto Colaninno to sell noncore industrial holdings. Cisco has little interest in Italtel's traditional business of making telephone-switching equipment. Instead, the San Jose, Calif., maker of computer-networking gear wants Italtel's 300 engineering consultants to push Cisco equipment as they design networks for Telecom Italia and other clients.
Cisco relies heavily on these outside consultants. In the past year, it has struck deals with International Business Machines Corp., KPMG Consulting Inc. and European consulting firm Cap Gemini SA to expand its presence in the U.S. and Europe.
"There's a huge opportunity there," said Joe Golden, a Cisco business-development manager in Europe. Mr. Golden said there are as many as 70 upstart phone companies preparing to challenge Telecom Italia in Italy, each of which will need help designing its network. At the same time, the deal will reinforce Cisco's ties to Telecom Italia, one of its biggest customers in Europe, and one of the continent's largest Internet-service providers and portal operators.
Cisco and Italtel have worked together since 1996, when Italtel helped Telecom Italia build a data network using Cisco equipment. In December, Cisco bought the fiber-optics system business of Italy's Pirelli SpA. "Cisco has to figure out a way of having more influence at these European carriers," said James Wade, an analyst at Deutsche Banc Alex. Brown in Baltimore. "This allows them to get more distribution muscle." In 4 p.m. trading on the Nasdaq Stock Market Friday, Cisco shares rose $2.375 to $63.5625.
Italtel , which is retaining company veteran Giovanni Barbieri as CEO, hopes to pool its own experience in traditional telephone switching with Cisco's Internet know-how, as networks begin carrying a converged stream of voice, data and video.
"The opportunity here lies in the combination of skills that Cisco and Italtel bring together," Joseph L. Rice III, the buyout fund's chairman, said. "We also don't want to drift far away from the Telecom Italia guys. Apart from the marvelous monopoly in Italy, they offer a logical way of extending our reach to Spain and Latin America." Telecom Italia owns extensive interests in Spain, Brazil, Argentina and Chile. Italtel posted a net loss of 40 billion lire ($9.8 million) in 1999, including a 160 billion lire restructuring charge. Revenue totaled 1.4 trillion lire. This year, Italtel plans to reach sales of 2 trillion lire. At the same time, Italtel's dependence on Telecom Italia is expected to shrink to about 60% from last year's 70% of sales, Mr. Barbieri said. Telecom Italia had operated Italtel as a 50-50 venture with Germany's Siemens AG, which contributed wireless-equipment plants to the company. That venture was dissolved last year after Olivetti SpA took over Telecom Italia, with Siemens taking back the wireless facilities.
For Clayton, Dubilier & Rice, which opened a European office last year, the Italtel transaction represents a first foray into the Italian market. Its previous European deals include the acquisition of Schulte GmbH, a wholesale building-material distributor, from Thyssen AG in 1998 and this year's purchase, jointly with Allianz AG's Allianz Capital Partners, of the Fairchild Aerospace Corp., a maker of Dornier aircraft. Mr. Rice said he foresees an IPO for Italtel as soon as next year or 2002. Apart from raising cash, the IPO is also important as a way of attracting talent to the company, he said.
Goldman Sachs Group Inc. advised Telecom Italia while Merrill Lynch & Co. advised the investment group, company officials said. The Italtel transaction is one of the larger private-equity deals involving Italian companies in recent years. Other high-profile acquisitions include the 1996 purchase of the Ducati motorcycle maker by the Texas Pacific Group and last year's acquisition of the Piaggio scooter maker by Deutsche Bank AG's private equity arm. --- Tomaso Eridani in Milan contributed to this article
