Conference 7.286::digital

According to DOWVISION, DEC is paying a 160% premium over market value for
the Olivetti shares.  That means we're paying 2.6 times what the market
thinks they're worth.  Can anybody explain this?

    
    Please read the info on Digital & Olivetti shares in DIGITAL_INVESTING
    note #66.
    
    Kevin
    

    BTW, DIGITAL_INVESTING is at SUBWAY::DIGITAL_INVESTING.
    
    		Alfred

                     *************************************
                     THIS MESSAGE IS FROM ELISABETH VOGLER
                     *************************************
    
    
    
    
    Olivetti and DEC
    Announce a Strategic Alliance
    *****************************
    
                        
    Ivrea, 26th June, 1992: DEC and Olivetti today announced a significant 
    business alliance which will extend Olivetti's system offering to 
    include DEC's powerful new Alpha RISC technology.                   
    
    DEC has also reached agreement with CIR, to become a shareholder in 
    Olivetti. This represents a long term association between DEC and CIR 
    that will contribute to the development of Olivetti as an independent 
    leading Information Technology company.
    
    DEC will acquire from the members of the shareholders group 20.250.000 
    shares (4.03%) of Olivetti common stock for a total consideration of 
    Italian Lira 172,125 billion. DEC has also agreed to purchase from the 
    members of the shareholders group, an additional 20.250.000 shares 
    (4.03%) of Olivetti common stock for the same consideration before the 
    end of 1994, consistent with the progress of the alliance. Furthermore, 
    DEC has agreed to purchase on the open market within June 1993, an 
    additional 9.500.000 shares (1.89%) of Olivetti common stock.
    
    Under the terms of the agreement, Alpha will become a strategic 
    architecture for future Olivetti products. DEC will supply chips and 
    system platforms based on its Alpha RISC technology, and networking 
    software.  
    
    DEC announced Alpha in February, as the industry's most advanced 64-bit 
    reduced instruction set computing (RISC) architecture, designed to be 
    fast, reliable and open. Since then Alpha has achieved growing 
    acceptance as a leading RISC technology, with more than six hundred 
    independent software developers publicly committed to move their 
    offerings to the Alpha platform. 
    
    Most recently, Microsoft announced during DECworld, DEC's world-wide 
    sales and marketing event, that it will port its widely accepted 
    Windows NT software product to Alpha-based technology.  
    
    The agreement also represents a significant extension to the current 
    DEC-Olivetti technology and OEM agreements covering PCs, workstations, 
    and networking, as well as joint research efforts into multimedia 
    applications and communications being conducted at Olivetti's 
    Cambridge, UK research laboratories.                  
    
    "DEC's Alpha technology is the logical evolution of our RISC strategy, 
    particularly when it comes to operating systems such as Windows NT and 
    UNIX, and also applications software," said Elserino Piol, Olivetti's 
    chief operating officer. "We will continue to implement our strategy as 
    it was presented at our `Olivetti Week' in Rome, and we are convinced 
    that this move will strengthen our position as a leading global 
    supplier of Information Technology solutions ranging from individual 
    workstations to Enterprise-wide systems."
    
    "DEC's decision to invest in Olivetti, reflects our deep belief that a 
    shared technology strategy creates significant value for customers of 
    both companies by providing them with a choice of innovative 
    technologies, and our determination to lead the development of industry 
    standards," said Kenneth H. Olsen, President, Digital Equipment 
    Corporation.
    
    "DEC's investment in Olivetti cements our long-term commitment to 
    provide significant technological benefits to all our customers," said 
    Carlo De Benedetti. "We are both committed to a common Open Systems 
    strategy, to build capabilities in specific areas of excellence, to 
    preserve the independence of individual market strategies, and to 
    ensure customers that no matter who they purchase products from, the 
    underlying technology will conform to open industry standards."
    
    Carlo De Benedetti also emphasized that "CIR will continue to hold the 
    largest share of Olivetti's equity which is consistent with its 
    long-term commitment to manage Olivetti's business."
    
    DEC will have up to two senior executives sitting on Olivetti's Board 
    as the alliance progresses.
    
    "The alliance significantly expands the reach of DEC's technology 
    strategy, and in particular, our Alpha RISC architecture." said Pier 
    Carlo Falotti, President and CEO of Digital Equipment Corporation 
    International (Europe). "It brings the long-term benefits of Alpha to a 
    large number of Olivetti's customers through Olivetti's extensive range 
    of open systems." 
    
    This alliance marks an important step in the implementation of 
    Olivetti's vision for the 90's. It is consistent with Olivetti's 
    strategy of building its offering by adopting and integrating the best 
    available technologies in a coherent architecture. Olivetti was among 
    the first in the industry to understand the strategic implications of 
    Open Systems and it has developed a complete system offering by 
    integrating its own and other partners' technologies and products to 
    develop a powerful set of solutions for a wide range of applications. 
    As a result, Olivetti's current offering will continue within the 
    framework of the Open System Architecture, and it will add to its long 
    term competitiveness by taking advantage of the Alpha technology.
    
    Olivetti, headquartered in Ivrea, is the leading European-based 
    information technology group. It is active at the forefront of the 
    computer and office automation industries, with innovative products 
    ranging from personal computers to specialized workstations and 
    networked servers. The Group Commercial subsidiaries and a technical 
    assistance organization operate in over 30 countries through 4,500 
    dealers and 1,000 Systems Partners.
    
    Digital Equipment Corporation, headquartered in Maynard, Massachusetts, 
    is the leading worldwide supplier of networked computer systems, 
    software and services. DEC pioneered and leads the industry in 
    interactive, distributed and multi-vendor computing. DEC and its 
    partners deliver the power to use the best integrated solutions - from 
    desktop to data center - in open information environments. 
    
    
                                      ***
    
    

Distribution:

Not printed

------- End of Forwarded Message


    

Re: .5

Why do you feel that way? Philips here got us into all sorts of financial
institutions that we'd not had a presence in before; I couldn't comment on
Kienzle because they're very small in my geography. Olivetti here also sell
into many areas that we're not touching.

One of the basic problems we're trying to address is that 5-6% market share
for Digital technology is in the "also ran" league. Top management appear to
be trying to increase both our direct presence (buy Philips+Kienzle) or by
encouraging significant OEMing of our technology - in this one case by virtue
of an equity stake in Olivetti.

So... what's your proposal?
								- Ian W.

ps:	I'm under 35 ;-)

    
    re: .5
    
    Prove it.

Anyone knows what the actual Olivetti stockprice is?

I found a quotation in a paper I read on the plane but
it was unclear in which currency it was. According to that
number we are paying much more for Olivetti stock than the
actual market value, so there must be something wrong.

   Rob

    I think I read somewhere the mark-up was 160%.
    
    

Reply .5 was deleted by a moderator.

		Steve

    Good. The last thing we need is innuendo about our partners.

    I must admit that like other people here I almost fell of my
    chair when I saw what Dec had paid for the shares in Olivetti.
    (8500 lire vs. a market price of 3220 ca.)
    
    However as was stated this is not primarily a share purchase operation
    and obviously both Dec and Olivetti are not going to lay out the full
    specific details of their intentions for all our competitors to read
    about and take preventative action.
    
    The way I see it is this; the excess over the market value will be 
    used by Olivetti to reduce its debt and arrive at a break even this
    calendar year thus giving it time to re-organise to satisfy certain
    requirements of the agreement with Dec, it will exclusively use Dec
    technology in all its appropriate products and Dec has "bought" its
    whole distribution network world wide.
    
    Some noters have said here "Who the hell is Olivetti!" because of its
    low percentage of the U.S. market (about 5%/7% I think) but they have
    a big presence in Europe and where they are not Dec has other agree-
    -ments in course to fill the gap (with Siemens in Germany for
    instance). 
    
    No one is arguing the fact that a decent presence in the U.S. IT market
    is the criterion for a company's technology  but remember that Dec
    would have less than half its current revenue if it was only in the US
    and I shudder to think what the losses would be without the European
    contribution. (BTW for years now European products have been totally
    manufactured there.)
         
    Other noters have said here that Dec is going into the low end business
    and this cannot be done without pretty vast distribution networks.
    
    There is no time left to build them up ourselves so we have to buy 
    them to get our stuff under the customers nose NOW!
    
    Some of the old hands will remember the blood-bath of our PCs some
    years ago.
    
    They were damned good machines but you can't survive producing Rolls-
    -Royces for people who want, and can only afford, a decent run of the
    mill family car.
    
    Therefore we need alliances with companies like Olivetti who are used
    to producing what people want and who will do this with our technology
    but who will also enable it to get to the street at a reasonable price.
    
    The thing to keep in mind here is that Dec hasn't just bought shares.
    
    Will it work or not? Who knows? It's to be hoped that Top Management
    have backed a long term winning strategy in this case but one thing is
    for sure that with the current ferment in the industry any company that
    does nothing is destined, at best, to wither away.
    
    In my opinion even if it doesn't work it's better to go down fighting.
                                             
                                 Max 
    
    
    

	Also, remember that the EEC invests a great deal of its money in 
	European technology advancement, Digital cannot take advanatge of this,
	neither can IBM., etc........

	Olivetti can.    
    
    	Heather

    re .13: Not quite true - DEC (Europe) has been involved e.g. in a few
    ESPRIT� projects. Also, IBM tends to get a fair amount of EC and similar
    funding. It's probably easier for Olivetti though.
    
    �European Society for Promoting International Travel   :-)

Hello,

Don't forget that Olivetti is "the sizable national computer manufacturer" in
Italy. 

A point aside from the market share issue Olivetti may have. Italy participates
financially (often more than other EEC countires) in many national or
international facilities/organizations whose aim is purely research/scientific.
These institutions often have large computing needs. As a result Olivetti is
often in a good position for sales. Admittedly Digital is also present on these
accounts, but I believe that a joint Digital/Olivetti product offer can only be
rewarding! 

Lets wait and see...

	Federico

    
    While hinted to in the base topic and mentioned in the formal
    announcement the other replies seem to forget what appears to
    be the major motivation for Digital in this deal: Alpha!
    We want other computer makers, and in particular 'friendly'
    ones to help us make Alpha a standard. Add to that a 'foothold
    in Europe' and the deal might just make sense. Time will tell.
    
    Hein.

    And we have a long-standing relation with Olivetti - they were a big
    PDP-11 OEM in the 70's, the 'Olivetti' computers of those times were
    just PDP-11's (with an Olivetti label).
    

    Didn't Olivetti make the original laptops?  If my memory is correct,
    these were the predecessors of today's laptop, weighed more than spec
    by a pound, and had serious delivery/service problems.

    Don't know about laptops - I have a DECstation 325 on my desk, it's
    made by Olivetti. I'm totally happy with it, other than that the disk
    drive failed after about one year.
    
    But the disk is made by Conner, an American company...
    

Re: .18

The DECpc 320sx Notebook and the DECpc 333 Portable were made by Triumph-
Adler, which is wholly owned by Olivetti. Notes: RANGER::DECPC_PORTABLES.

In addition most of the European DECpc's were originally by Olivetti (and
not Tandy asin the US); nowadays with the DECpc 433W, 433T and the 400ST
series it is an even match with Olivetti-manufactured vs. Intel-manufactured
DECpc's in Europe. Notes: SUTRA::EUROPC.

...petri

Alpha may be the reason, but it sure looks to the world like we need to bribe
Olivetti to use it.

    
    
    There's, two points that drove me crazy when I heard about this 
    Olivetti deal and eventually led me to make the ( now deleted )
    .5 entry:
    
    First, I admit there's lots of good arguments. There's always
    good arguments to make a deal. But! If I were an investor with 
    billions of  $$$$ , one who really likes the computer business
    ( and of course likes to get some profits also ) I'd go and check 
    money market rates and never ever considered to buy the O. business
    because I were an investor who likes to sleep well. However ,if I thought
    about the famous Maranello firm ( the one with the jumping horse
    in its logo, you know...) I'd never ever considered checking
    money market rates. And that's a simple knockout criterion all
    these highly sophisticated 'Masters of Business' forget about
    when dealing with statistical figures , thinking about strategic
    alliances, joint ventures and whatever.
    
    Second: Few days ago, I read an interview with Mannesman CEO
    Dieter, former owner of Digital-Kienzle, counting himself lucky
    for having sold "this terrible business" to Digital. The Phillips
    bussines was on the edge of bankruptcy, when we bought it, and Olivetti
    is purchasing lot of red ink. Why don't we join sound bussinesses?
    
    Is nobody in that class interested in our products, especially Alpha?
    Remember, up to know only three companies are interested in the
    Alpha technology. Cray, who wants to build an MPP system around it, the
    japanese Kubota, who is manifacturing graphical workstations and
    Olivetti. Actually none of them is a market leader.
    
    helmut
    
    

re Note 1964.22 by SORGEN::HELMUT:

> Why don't we join sound bussinesses?
  
        Well, perhaps we believe that we know how to turn around a
        declining computer business?  (Or perhaps we had better learn
        quickly!)

        Bob

    In case anyone is still interested here is the invoicing in 
    millions of dollars of the top 7 European IT companies  for
    1991.
                        M $
                      --------
    Siemens Nixdorf    7308.6
    Olivetti           6050.8
    Bull               5929.8
    ICL                3308.1
    Cap Gemini         1776.3   
    Memorex            1533.1                   
    Finsiel            1015.6
    
                                   Max

Five year summary of Olivetti financials (billions of lira):

		1987	1988	1989	1990	1991

Revenue		7,375	8,407	9,031	9,036	8,607

Net Income	402.0	356.2	202.8	 60.4	(459.8)

Employees	58087	57560	56937	53679	46484

Per Capita Rev	123.3	142.7	155.6	162.3	167.4	(millions of lira)

1$ = about 1150 lira.
	  

This is similar to a note I put in the Digital_Investing conference but I got
no answer so I am asking a wider audience.


Going back to the original terms in .5

>>                          .... DEC has also agreed to purchase from the 
>>    members of the shareholders group, an additional 20.250.000 shares 
>>    (4.03%) of Olivetti common stock for the same consideration before the 
>>    end of 1994, consistent with the progress of the alliance. Furthermore, 
>>    DEC has agreed to purchase on the open market within June 1993, an 
>>    additional 9.500.000 shares (1.89%) of Olivetti common stock.


Have the second and third parts of the agreement taken place?

The Olivetti share price is about 3,000 Lire, So the price Digital will or
have paid for the Third instalment (8250 per share) is still 175% more than
the market value. At 172.125 Billion Lire or (114 Million dollars)
this could be an expensive venture. Have any benefits appeared from the
Collabration yet?


Ferdy