When Controlling Shareholders Live Like Kings. The Case of Telecom Italia

Abstract

The evolution of the control of Telecom Italia, the sixth largest telecommunication company in the world by turnover, is an exemplary textbook case for studying minority expropriation. Our study consists of three parts. First we analyse how Olivetti's and Pirelli's acquisitions of Telecom Italia were achieved and, in particular, who paid for the acquisition of control by tracing down all operations performed in the market. Second, we provide evidence 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. Third, we investigate how minorities are affected by the pyramidal control. Our analysis reveals that despite the introduction of the Draghi reform in 1998, aimed to strengthen investors' and minorities' rights, minority protection law is still inadequate in the Italian financial market. The case of Telecom Italia shows how, despite recent regulations, a controlling shareholder can still "live like a king".

Keywords: Ownership structure, Minority protection, Wealth transfer, Business Groups, Voting premium

JEL Classification: G32, G34