Controlling shareholders and minority protection: governance lessons from the case of Telecom Italia

In this paper, we study the history of Telecom Italia, the sixth biggest world telecommunication company for turnover, to evaluate how changes in control affected minority protection. Telecom Italia was privatized in 1997 and it has been the target of two takeovers in 1999 by Olivetti and 2001 by Pirelli. Recently, in 2008, control was ultimately passed over to a newco, Telco, owned by the Spanish Telefónica and a consortium of Italian banks. We analyze how the acquisitions of Telecom Italia were achieved and, in particular, who paid for the control, and what were the consequences for minorities. We show that, in the case of Telecom Italia, the implementation of pyramids is connected with the existence of large private benefits, measured both by the size of premium paid for the acquisition and by the voting premium. However, minorities constantly suffered a strong expropriation due to the acquisitions. Our analysis reveals that despite the introduction of the Draghi reform in 1998, aimed to strengthen investors’ rights, minority protection is still inadequate in the Italian financial market.