Intrigue, Italian style: the monsters from the deep that have ravaged Olivetti

Italy is the Loch Ness of Europe. Its placid, respectable surface is occasionally broken by something slimy and ugly arching out of the depths. Is it all in the imagination? Or is it one of a school of small creatures? Or is it perhaps the visible portion of some horrible hidden Leviathan below?

The latest ripples in Italy have surrounded Olivetti, the computer and office equipment group. In the past two weeks it has been hit by a scandal which has sent its share price diving to new troughs as low as L465 (19p), less than half its par value. Last April it was worth more than L1,000.

At the heart of Olivetti's crumbling fortunes in the past fortnight are allegations by Renzo Francesconi, its former director-general in charge of finance and auditing, that its interim results could not be trusted. The charge is hotly contested by Olivetti, which is now threatening to sue Mr Francesconi.

One thing makes this particular sighting of Italy's Nessie more alarming than the usual run of political and Mafia scandals. The problem may have been knowingly dumped in the lap of foreign institutions, princ- ipally American and British.

Central to the drama is Carlo De Benedetti, who not long ago was being feted as the wonder kid of Italian industry. That Olivetti exists today at all is credited to his brilliance.

But De Benedetti's glow has dimmed in recent years as the company stumbled from one loss to another. And it flickered like a candle in the wind in 1992 when he was found guilty of fraud, sentenced to six years and four months in jail, and barred from being a company director for 10 years for his brief involvement with Banco Ambrosiano, the Vatican bank.

His continued occupancy of the chairman's office is due to a quirk of Italian law. Sentences there do not take effect until all appeals have been exhausted, and De Benedetti is still fighting his conviction. By the time a final judicial opinion is intoned, it may well be irrelevant anyway. Olivetti's fate will be settled much sooner than that.

In the meantime, he has stepped out of the firing line by resigning his executive post in favour of the honorary chairmanship. The move, on the same day the disappointing and now questioned results came out, was immediately viewed with scepticism.

When the chief executive, Francesco Caio, was forced out on Wednesday - he had been named in the fraud investigation by the public prosecutors - any remaining doubts about who was really in control evaporated. Caio's replacement was Roberto Colaninno, formerly the chief executive of Sogefi Group, one of Benedetti's companies. Also on Olivetti's four-man executive committee are Benedetti's son, Rodolfo, and the family lawyer, Antonio Tesone. "I don't want more of a shake-up in the boardroom," said one Milan broker. "How could I want more? There hasn't been any yet."

The move to honorary chairman will have yet another effect. Although he seems likely to retain full control of operations, as a non-executive De Benedetti will no longer be legally liable for the company's actions. Italian lawyers say, however, that he would still be responsible for any matters that might arise from decisions that were made before the change.

Speculation that Anglo-Saxon investors and banks have been passed a hot potato is more tenuous but equally as compelling. The rumours are attributed to malelingua, the Italian term for whispered cynicism. What is clear is that the Italians began reducing their exposure to Olivetti more than a year ago. Coincidentally, the move began at about the same time that they were briefed on the company's L2,000bn rights issue last November. "This is the classic pacco - the wrapped-up Italian present," said one London analyst who watches Olivetti closely. "The cartons of cigarettes street kids in Naples try to sell you are paccos. The first package contains tobacco, the rest sawdust."

Olivetti has been filled with wood shavings before. The company was founded in Ivrea in 1908 by Camillo Olivetti. Three years later it introduced the first Italian-made typewriter.

In 1932 it went public and in the late 1950s, under the leadership of Camillo's son Adriano, it diversified into computers. After his death in 1960, the family sold most of its shares, however, and the new managers failed dismally to capitalise on his move into digital technology. By the mid-1970s, the company was languishing dangerously close to bankruptcy.

By contrast, De Benedetti was enjoying a charmed career. He was born in Turin in 1934 and spent the war years with his family in Switzerland where they had fled from the fascists. From 1945 to 1949 he watched his father rebuild the family's metal piping business, and in 1959, with a degree in electrical engineering under his belt, he took over the company's management and rapidly expanded it.

His performance with the family business, Gilardini, brought him, in 1976, to the attention of Gianni Agnelli, the head of Fiat, Italy's biggest private sector group. The troubled car-maker invited him in as managing director but there was an immediate clash of cultures. De Benedetti wanted to reform the industrial giant as a modern company. Agnelli and his brother Umberto still saw it as a family fiefdom. Benedetti was turfed out after 100 days.

Throughout his life he has presented himself as an outsider, battling the entrenched interests of the ruling economic elite. At first that was true. He came under a rain of criticism for making forays into the stock market without getting the permission of the established powers. But Italian business has changed, and after 25 years at the top, his claim to be an outsider can only be seen as a quaint affectation. De Benedetti is as much a part of that elite as any son of a grand old house.

The change in De Benedetti's status came when he finally made peace with Mediabanco, the lynch pin of the establishment's network of corporate cross-ownerships. So close did they become that in 1987 he joined the bank's board. And it was Mediabanco that was behind last year's rights issue. After the current crisis erupted, it was to Mediabanca that De Benedetti first turned to for support.

Olivetti and De Benedetti came together in 1978 when he invested $17m (pounds 11m) in the company, becoming its chief executive. The turnaround that followed was impressive by any standard. He slashed jobs and debt, increased research and development spending eightfold and introduced the firm's first electric typewriter.

In 1982 Olivetti brought out its first personal computer, just one year after IBM's arrival on the fast-growing market. Under his leadership, Olivetti became Europe's second largest computer company, after Germany's Siemens.

There had been other hiccups in De Benedetti's rise, however. His tenure at Banco Ambrosiano lasted for an even shorter time than his spell at Fiat - just 65 days. Six months after he left, its chairman, Roberto Calvi - known as God's banker because of his links with the Vatican - was found hanged beneath Blackfriars Bridge in circumstances which are mysterious to this day. A day earlier, Calvi's secretary had thrown herself from a window in the bank's headquarters, leaving a suicide note cursing her missing boss.

The investigation that followed exposed a financial sewer of Stygian proportions. Banco Ambrosiano's accounts had a $1bn hole in them. The magistrate in charge, Pier Luigi Dell'Osso, called for some 40 prominent Italians to be charged, including De Benedetti. Others involved were members of the P2 Masonic Lodge. One Catholic archbishop was charged with fraudulent bankruptcy but the warrants were never served because of the Vatican's diplomatic immunity.

Although De Benedetti was not at Ambrosiano long, he did well out of the deal. He left the bank in 1983 complaining that he could not get enough information on its financial status. The 2 per cent stake in the bank that he had bought the previous November was sold to a third party for a 2 per cent capital gain.

It was alleged that Calvi subsequently decided to invest L11bn in one of De Benedetti's companies, several times its existing value. De Benedetti once said that accepting the Ambrosiano post was "my greatest mistake".

Between Calvi's death and De Benedetti's conviction, the Turin businessman continued to wheel and deal, using both Olivetti and his personal holding company, CIR. His biggest failure came in the late 1980s when his bid for SGB, a Belgian holding company was topped by a French competitor. CIR was left with a hefty debt.

Then Oli-vetti itself began running into problems. The company's reputation for innovative products was wearing thin. Its PC division's biggest customer was another arm of the company, Systems & Services, which put together integrated computer networks for businesses and organisations. The latest figures - accurate or not - were disappointing partly because they showed the profits from Systems & Services under severe pressure too. The company as a whole has lost L4,340bn since 1990.

Last year's L2,260bn cash call was supposed to bring the company back to financial health. Like the pacco of Neapolitan cigarettes, the company did have some tobacco in it. Its 41.3 per cent stake in Omnitel, Italy's second mobile phone concession, was widely seen as a licence to print money. Even after Francesconi's charges sent the price tumbling 10 per cent a day (the maximum allowed before trading is suspended), rallies were mounted on the strength of Omnitel's prospects. Olivetti's shares may be trading at half their par value, but that makes them a cheap way to get into Omnitel. The question is whether the rest of the company is worth nothing, or less than nothing.

Mr Francesconi's charges spurred Consob, the Italian equity regulator, to action. First it demanded answers to 16 key questions. A reply was delivered, but analysts said it did little to clarify the situation. In particular the company flatly refused to re-evaluate the cost of the computers that were sitting in its warehouses. Analysts suspect that the company may have over-estimated how much it would recover from the sale of old stocks. Computers have very short shelf lives - one analyst compared them to lettuces - so unsold machines can quickly become so much junk.

The value of its ex-Soviet Union receivables is also under examination. The company is now owed L208bn, including L74bn in interest, but it is not clear how that will be paid, if at all. Negotiations have now been turned over to Mediocredito Centrale. The company says that the Russian authorities intend to issue convertible curr- ency government securities as payment. As one broker put it at the weekend, "the situation with Olivetti is fluid". No one knows what, if anything, will be dug up by Consob investigators. Even if Olivetti's books are giving an accurate reflection of the company's situation, the company is in dire straights.

Possibly the only salvation will come from the disposal of loss-making divisions, particularly the personal computer arm.

One possible buyer would be Fujitsu, which would primarily be interested in the company's European distribution network. But it is about disposals that Olivetti is being most secretive. Citing an Italian law in its response to Consob, the company said: "The company is entitled not to respond to any such request for information."