MILAN, Italy-- Telecom Italia, a leading international telecommunication company, today announced that an investor group led by Clayton, Dubilier & Rice, Inc. (CD&R) and Cisco Systems, the worldwide leader in networking for the Internet, will purchase approximately 80 percent of Italtel, Telecom Italia's telecommunications switching equipment subsidiary. The investor group also includes Advent International and Brera Capital. Italtel will be an independent world-class supplier of converged voice/data and network technology to provide integrated multiservice solutions to customers.

The transaction has a value of approximately euro 1 billion. CD&R's Fund VI will provide approximately 285 million euro of equity in exchange for 50.1 percent of Italtel. The two other private equity investors, Advent International and Brera Capital, will own 11 percent together. Cisco and Telecom Italia will each own approximately 19 percent of Italtel. Unicredito Italiano, which is underwriting the financing for the transaction, will head a syndicate of banks in providing both long and short-term financing. The investment group plans an early IPO for Italtel, with Telecom Italia maintaining its holding in order to facilitate Italtel's transition from a wholly owned subsidiary to an independent company. Telecom Italia will not be involved in the operational management of Italtel.

As proceeds from this transaction Telecom Italia will realize approximately euro 800 million, with a positive effect on consolidated income for the year 2000 estimated to be approximately 300 million euro.

Telecom Italia Chairman and Chief Executive Officer Roberto Colaninno states, "This is an important step in the rationalization of our industrial portfolio and our refocusing on core our business. This deal offers significant value for our stake in Italtel, and Telecom Italia is confident that with the commitment of partners of the caliber of Cisco and Clayton Dubilier & Rice, Italtel will forge ahead and fully realize its new industrial plan."

"We are very pleased to be making this large, complex investment with a distinguished group that includes Cisco Systems, which shares our confidence in Italtel's future and our vision for building the company," said Joseph L. Rice, III, Chairman of CD&R. "Building businesses in partnership with management is at the core of our investment approach. Our commitment is to support Italtel's outstanding leadership team as it transforms the company into a stand-alone leader in the global telecommunications technology market."

The new owners plan to combine CD&R's business transformation experience and operating skills, along with Cisco's unique Internet communications technology expertise and Italtel's proven voice switching technologies and system integration expertise to accelerate the development of Italtel into a leading provider of network solutions for the convergence of voice, data and video to meet growing global demand. The rapid increase in transmission of data over voice lines in Europe has strained capacity and peaked consumer interest in voice over Internet Protocol (VoIP) solutions.

"We are in an exciting period of dynamic change that requires a new business model where solutions are provided through an Internet ecosystem of partners," said William Nuti, President, Cisco Systems, Europe Middle East and Africa (EMEA). "Cisco's expertise in the Internet economy and world-class networking hardware combined with Italtel's expertise in voice/data integration brings together the resources to support the enormous commercial opportunities ahead."

Italtel is the principal provider of digital voice switching equipment and software for Telecom Italia. Telecom Italia will remain a major customer of Italtel. As an independent company, however, Italtel will enhance its ability to market products and services to alternative telecommunications providers, both in Italy and abroad.

Under the new ownership, Italtel will also expand its fast growing systems integration business for carrier networks. This segment of Italtel's business, which employs 300 system and software engineers, out of 1600 people involved in R&D, had 100-percent sales growth in 1999 and will continue to grow through long-term contracts with Telecom Italia and other telecommunications providers, both in Italy and abroad.

Upon completion of the transaction, Charles P. Pieper, a principal of CD&R, will become Chairman of Italtel. Prior to joining CD&R, Mr. Pieper was a senior operating executive at The General Electric Company for 16 years. His last position at the company was President and Chief Executive Officer of GE Lighting Europe.

"Italtel is a strong company which is uniquely positioned to capitalize on the rapidly growing European demand for convergence products," said Mr. Pieper. "Together with our partners, we have a clear opportunity to create a leader in the fastest growing sector of the telecommunications industry."

Mr. Giovanni Barbieri, Chief Executive Officer of Italtel since 1998 and a 30-year veteran of the company, will continue in his position. Mr. Barbieri said, "Italtel's long history of voice and data integration for Telecom Italia, as well as innovative voice products for carrier class solutions, combined with Cisco's Internet expertise, means customers will benefit from the combined size, reach and extensive Internet and telecommunications experience to expand their own capabilities. This move is fully consistent with Italtel's strategy of becoming one of the market leaders in convergence and network solutions."

Italtel and Cisco intend to support joint customers by providing integrated applications and solutions in the converged data, voice and video arena. In addition, Italtel will serve as a systems integrator with responsibility for prime contracting, serving both telecom and enterprise market segments, and acting as network integrator with primary responsibility in network engineering, deployment and assistance. Italtel and Cisco intend to collaborate on solution design, contracts and implementation programs to help customers build better end-to-end networks.

The transaction is subject to review by regulatory authorities in the European Union and Italy. Upon regulatory approval, the transaction is expected to close in the third quarter of 2000.

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