Telecom Italia has bowed to shareholders by recasting its defence against predator Olivetti, dropping a plan to buy out mobile unit TIM with shares and offering $22.3 billion cash instead.

Managing director Mr Franco Bernabe secured the change at a six-hour board meeting in Rome on Saturday, setting Olivetti an ambitious task to keep Europe's largest take-over attempt afloat. The move also paves the way for increased debt for Telecom on financial markets already bulging with a historic funding move sealed by Olivetti just one day earlier to pay for its bid.

Telecom gave no further details but a source close to the company said Mr Bernabe had switched tactics after listening to shareholders who felt Europe's fourth telecoms group needed to increase its debt in order to use capital more efficiently. Low interest rates are pushing many big companies in this direction.

The cash offer price values the whole of Europe's largest cell-phone company at $51 billion in market capitalisation.