Pirelli, Telecom Italia Shares Surge on Talks with AT&T

Shares of tire-to-telecoms group Pirelli surged in early trading on the Milan stock exchange Monday after the company announced it is in exclusive talks with U.S. telecoms giant AT&T and its Mexican affiliate America Movil S.A.B. de C.V. to sell two-thirds of the holding company which controls Telecom Italia SpA.

Pirelli shares opened up 10.6% at 0.915 euros ($1.22) and Telecom Italia opened up 7.7% at 2.30 euros ($3.06) after Pirelli and AT&T announced the negotiations late Sunday.

The proposal would give AT&T and America Movil one-third each of the Olimpia holding company, which controls 18% of Telecom Italia.

Italian government officials expressed alarm over the possible deal on the former telecommunications state monopoly. Industry Ministry Pierluigi Bersani told the La Repubblica newspaper that the proposal was "disconcerting," while Infrastructure Minister Antonio Di Pietro said the government should be ready "to contrast these maneuvers."

The Cabinet of Premier Romano Prodi has lately had a rocky relationship with Pirelli head Marco Tronchetti Provera, who took control of Telecom Italia in 2001 but resigned his post as chairman in September after a public spat over plans to spin the company's mobile and fixed-line units off into separate businesses.

Pirelli owns 80% of Olimpia and clothing group Benetton holds the rest. After posting a 2006 loss because of a write down related to Olimpia, Pirelli's board ordered the chairman to explore a sale of the stake in mid-March.

While maintaining dominance in the Italian market, Telecom Italia has struggled with declining revenue at its fixed-line business. Besides providing broadband, wireless and traditional phone service in Italy, Telecom Italia provides wireless service in Brazil and broadband service in the Netherlands, Germany and France.