Olivetti oils City slickers

Evidence is emerging that the channel has started to turn its back on Olivetti in the wake of continual boardroom reshuffles followed by a doubling of its debts.

One dealer said that it will no longer sell Olivetti product as a direct result of the way in which the company has been handling quality control problems. 'If a customer complains about their Olivetti PC, Olivetti will, invariably, tell us to give an immediate refund. No questions asked. That's all well and good, but if you're trying to run a business you just can't do that,' he said. That this should have followed the news that Olivetti has just doubled the amount of net debt it is carrying is no real surprise.

For the two months ended 31 August, Olivetti's debts amounted to some u1.01 billion, and while the company has considerable assets, its survival will depend on radical restructure.

The considered opinion from financial analysts is that the only way in which Olivetti can turn things round is to go for another rights issue.

But shareholders are likely to demand board-level changes. With 25 per cent of Olivetti shares owned by UK fund holders, there will be no room for sentimentality when it comes to demanding such changes on the Olivetti board.

Chairman Carlo De Benedetti's resignation, after weaker than expected results, was seen as a move to restore confidence in the company. But a senior Olivetti source told PC Dealer that De Benedetti's departure was little more than a marketing exercise, and that the chairman was still in control even during his brief period in exile. He is now back at the helm and many of his close associates hold key positions on the Olivetti board.

A likely candidate for appointment to the board is Dario Trevisan, a lawyer from Milan. Trevisan is being championed by a number of foreign investors, but he is wary of causing friction before such an appointment takes place. 'Investors want to contribute their point of view and understand the strategy,' he said.

Olivetti has to raise funds to cover losses and costs if it is to pull itself out of a worsening situation. To do this it may find it has to begin selling assets, such as its Lexicon printer division.

If it decides to try to tap the market with another rights issue, the company may find few investors willing to throw good money after bad.

This time even the Italian state may not be able to help.