Tronchetti Provera is smiling now

The complex 7bn euro deal also gives Pirelli, backed by fashion retailer Benetton, control of TI's mobile phone unit TIM, Italy's largest mobile operator, telephone directories publisher Seat-Pagine Gialle, and Tin.it, one of Italy's leading internet service providers.

"Telecom [Italia] is in a strong financial position. Everyone knows the debts are in Olivetti, but there are instruments for reducing Olivetti's debts," Mr Tronchetti Provera said.

Pirelli said it would have a business plan ready for the Olivetti-Telecom Italia group by the end of this year.

The deal was welcomed by the Italian Industry Minister Antonio Marzano on Sunday, who praised "the consolidation of the shareholder structure of Olivetti and Telecom Italia by an association of Italian entrepreneurs".

The European Commission will now have to pass its judgement on the deal.

Sale despite opposition

Olivetti fell into Pirelli's hands after the company that held the controlling stake, Bell, was sold by its shareholders, despite opposition from Olivetti and TI's chief executive Roberto Colaninno.

Colaninno: Likely to resign

Under the deal, a specially created company in which Pirelli holds 60%, and the Benetton family's Edizione Holding holds 40%, bought control of Bell.

It is expected that the holding company will be folded into Pirelli once the deal is cleared by the European Commission.

Olivetti said on Sunday night that Mr Colaninno would resign and be replaced by Enrico Bondi, currently chief executive of agriculture and energy giant Montedison, which itself recently fell to a hostile takeover.

'Good deal'

The takeover came just two years after Mr Colaninno, known as "the Accountant of Mantua", gained control of TI in what was at the time the world's biggest corporate takeover battle.

Mr Colaninno said on Sunday he tried and failed to persuade fellow investors in Bell not to accept Pirelli's offer but praised Pirelli and the Benetton family for striking a "good deal".

"The company stays Italian, and that, for me, is something to be proud of," he told the Italian press.

Bell grouped together dozens of northern Italian entrepreneurs who gambled on taking control of Telecom Italia under Mr Colaninno in 1999.

BT trouble

The deal could also spell trouble for British Telecom through its partnership with Benetton in the Italian mobile phone market.

Benetton holds 40% of Italy's fourth largest mobile telephone operator Blu, which it may have to sell because it is a direct competitor of TIM.

BT has announced its intention to sell its 20% stake in the company, the value of which would be cut if Benetton was forced by competition authorities to review its holding in Blu.

TI is also the biggest private investor in Telekom Austria.