De Benedetti's Latest Role: Sisyphus

Everyone has a bad day now and then, but Italy's Carlo De Benedetti may be seeing more than his share. His failed 1988 raid on a Belgian conglomerate saddled him with $1 billion in debt. His 1989 takeover bid for media group Mondadori turned into one of Italy's messiest corporate battles. His flagship company, computer maker Olivetti, went into the red last year, its first loss in 13 years. And now a Milan court has convicted him and 32 co-defendants of fraud in the bankruptcy of Banco Ambrosiano in 1982, Italy's biggest postwar bank collapse.

Although De Benedetti drew a six-year, four-month sentence, it's unlikely that he'll be turning in his tailored pinstripes for jailhouse stripes any time soon--if ever. He denies any wrongdoing and has appealed. But uncertainty is the last thing he needs now as he struggles to turn Olivetti around.

The 57-year-old De Benedetti insists that his role at Ambrosiano was marginal--he resigned as deputy chairman in early 1982 after serving only 65 days. That was hardly time, De Benedetti told BUSINESS WEEK, even to know about the $1.3 billion in shady loans to some shell companies controlled by the Vatican that ultimately toppled the bank. His only mistake, he says, was to be tempted into helping rescue the tottering institution in the first place. Otherwise, he says, "I would repeat everything I did."

Analysts say De Benedetti may be one of many victims snared by Italy's outdated bankruptcy laws. After all, a lower court last year cleared him of charges that he had illicitly profited from the sale of his 2% stake in Ambrosiano just months before the collapse. Some aides suggest the Apr. 16 judgment is political retribution for De Benedetti's outspoken criticism of the government. In any case, his appeal is likely to stretch out at least three years and possibly past the 1997 statute of limitations on the case, rendering the sentence moot.

BREATHING ROOM. For now, Olivetti is De Benedetti's biggest worry. Final results won't be released until early May, but insiders hint that the 1991 loss, including write-offs, could mount as high as $340 million on a 5% drop in sales, to about $7.2 billion. That's still better than some competitors. But with no relief in sight from slumping demand and a ferocious price war, analysts figure that Europe's leading PC maker will be lucky to break even this year on flat sales. Olivetti's stock, even after recovering from a 4.8% plunge on news of the conviction, is still down more than 60% from two years ago.

Olivetti must soon choose a major partner to supply the core microprocessor technology the company needs to carry it through the 1990s. Analysts speculate the leading candidate is Digital Equipment Corp. (page 30 24 ), but Hewlett-Packard and Japan's NEC may also be in the running. A deal would likely involve a substantial minority investment in Olivetti, giving De Benedetti the breathing room he covets to stay independent. But he would prefer to be in a stronger negotiating position. "To do an alliance, we have to get our own house in order first," he says.

Determined to reverse Olivetti's fortunes, De Benedetti took operating control last November for the first time since the early 1980s, shoving aside respected Managing Director Vittorio Cassoni. De Benedetti's first move was to cut costs by regrouping three operating units Cassoni separated in 1988, hoping to take them public. Union opposition forced him to scale back his layoff plan, but he is still targeting labor savings of $300 million over the next two years.

Olivetti's strategic challenge is equally daunting: It must keep revenues flowing in the short run with hot new products while building up its weak corporate computer network business. That's where future profits are most promising, but it's also the same market all major competitors are targeting. De Benedetti hopes to get a strong sales boost from a snazzy, ground-breaking, two-pound portable PC called Quaderno, which will be introduced at the Italian Grand Prix in mid-May. On the network side, Olivetti formed a joint venture in early April with Siemens and Groupe Bull to go after a bonanza of new European Community contracts for pan-European information systems.

Still, there are no quick fixes. One De Benedetti plan, to triple Olivetti's critical software division overnight by buying state-owned Finsiel, was recently torpedoed by the government. Yet, De Benedetti has strong motivation to persevere in the turnaround effort: If he can mend Olivetti, it could go a long way to redeeming his own reputation.

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