The supervisory boards of Deutsche Telekom and Telecom Italia were meeting last night to approve a merger that would create the world's largest telecommunications group.
The proposed deal would change the balance of power in the global telecoms industry, but it faces huge regulatory hurdles and the difficulty of unravelling alliances with other operators.
Governments in France, Germany and Italy are awaiting details of the plan, which raises sensitive issues of ownership and control of a strategic industry.
Telecom Italia announced last night that it was postponing a press conference in London today where the planned alliance was expected to be unveiled. The announcement came in the middle of a board meeting that had already lasted seven hours.
The delay fuelled speculation that Mr Franco Bernabe, Telecom Italia's chief executive, was facing opposition from his board, which is trying to fend off a separate hostile bid by Olivetti, its smaller Italian rival. Pressure has mounted on Telecom Italia to reach an agreement since the collapse last weekend of efforts to get shareholder approval for a defence plan against the Olivetti bid.
The main sticking point in the talks with Deutsche Telekom appeared to be a proposal that would see the Germans owning 60 per cent of the merged entity.
However, Telecom Italia said that press conference would be put off for a few days because of organisational problems.
A Deutsche Telekom-Telecom Italia merger would create a sprawling giant with a market capitalisation of almost $180 billion, and would mark the first time that one national operator has acquired another.
Both companies have important alliances and cross-shareholdings with other operators, with one of the most important being the link between Deutsche Telekom and France Telecom.
France Telecom said yesterday it was told of the deal only at the weekend. It said: "Our agreements with Deutsche Telekom are clear and incompatible with a unilateral strategic reversal."
The deal has received a favourable reaction in Bonn. The German Finance Ministry said it would not stand in the way of a tie-up.
Mr Massimo D'Alema, the Italian primes minister, is under political obligations to Germany after Bonn's endorsement of Mr Romano Prodi as the new European Commission president.
However, Mr D'Alema insisted yesterday Italy could not accept the idea of a privatised Telecom Italia merging with a company whose principal shareholder was the German government.
Deutsche Telekom is 74 per cent state owned, while the Italian Treasury still holds a 3.4 per cent stake in Telecom Italia, as well as a golden share.
Although Mr D'Alema said his government was studying "with interest" the proposed merger, he also insisted it was still necessary to know how and when the German government intended to shed its controlling stake.
Goldman Sachs is advising Deutsche Telekom. JP Morgan and Credit Suisse First Boston are advising Telecom Italia.
Shares in Telecom and its cellphone unit TIM were suspended after bourse watchdog Consob and the Milan stock exchange asked Telecom for more information.
Since the end of last year, Telecom Italia shares have risen 38 per cent and Deutsche Telekom shares 35 per cent, making them the top performers in the European telecommunications sector. Deutsche and Telecom Italia confirmed late on Sunday that they were holding talks.
