A Mix of Microchips and Pasta

By Spencer Davidson

Can microchips mix with potato chips? Do electric typewriters go well with pasta? Will photocopiers blend with hamburgers? Far from being a recipe for corporate indigestion, this is just the kind of formula favored by Carlo De Benedetti, 50, chairman of Olivetti, Italy's giant maker of office automation and data-processing equipment.

Three months ago, De Benedetti, through a family holding company, became the principal owner of Industrie Buitoni Perugina, one of Italy's largest food producers. Last week he took another big bite by announcing that he would pay $250 million for 51% of SME, a food subsidiary of IRI, the Italian government's vast holding company. The acquisition package includes more than 14 companies, which have 20,000 employees, operate 300 restaurants and 80 supermarkets as well as plants turning out everything from ice cream to tomato paste. Buitoni and SME together will have annual revenues of $2 billion.

Last week's deal added luster both to De Benedetti's reputation as a manager and to his flair for the dramatic, characteristics that have been his trademark for his nearly eight years at Olivetti. Says he: "This is the first time in Italy that a private businessman bought a state-controlled company and ! paid for it with real money, not pieces of paper or promises for future returns." After the new agreement is completed, Olivetti and the Buitoni- SME food group will remain separate corporate entities, but they will both come under De Benedetti's direction.

When De Benedetti took over in 1978 as Olivetti's managing director, the company was almost moribund. It had not paid a dividend in four years, had more than $1 billion in debts and was losing $6 million a month. Olivetti is now the most profitable Italian industrial company. Last year sales increased 22.5%, to $2.6 billion, and profits rose to $201 million.

Putting companies together is nothing new for De Benedetti. He earned a degree in engineering from Turin's Polytechnic in 1958 and ten years later took over as manager of his father's flexible-metal-pipe plant, which had just 80 employees. During the next five years, the younger De Benedetti expanded the firm by buying up small, mostly unprofitable companies. By 1976 his company was Italy's largest producer of car components and had annual sales of more than $46 million.

That same year, De Benedetti accepted the post of managing director of Fiat. But after 100 days on the job, he submitted his resignation for reasons that neither he nor Fiat has ever revealed. In early 1978, Olivetti's board of directors offered him the same job with its company. He bought $17.3 million worth of the stock to become Olivetti's largest shareholder.

At the time, Olivetti sorely lacked the kind of foresight and strategic thinking necessary for a company in modern office equipment. Among De Benedetti's first moves was stepping up research and development--from $28.3 million in 1978 to $130 million last year. He abandoned the manufacture of money-losing mechanical equipment like typewriters. He also began paring down a swollen payroll. From 61,500 employees when he took over, the number dropped to 47,600 last year, and is still declining. As a result, productivity has leaped more than 22% annually for the past two years.

A visitor today at one of Olivetti's plants in the rolling foothills of the Italian Alps near Ivrea might get the impression that the staff has gone out to lunch. Only small groups of workers are visible at their jobs in the modern ten-acre complex. Olivetti-designed robots, controlled by Olivetti computers, turn out more Olivetti computers and other electronic products in a surrealistic demonstration of the new industrial revolution.

^ To De Benedetti, the moves taken to rescue Olivetti in the late 1970s were only emergency first aid. Now he has to make the company a player in the global electronics field. He foresees a struggle looming in the industrialized world for the automation market, which is expected to more than double in size by 1990, to $100 billion. Says he: "We have to remain No. 1 in Europe and also become a major world leader. It may seem paradoxical to mention survival and expansion at the same time, but in our business there is no future in becoming a second-, third- or fourth-ranked company. Either you win or you die."

As one of his tactics, De Benedetti has sought strategic allies in the biggest computer market of them all, the U.S. In December 1983, Olivetti and American Telephone & Telegraph announced that the U.S. giant would put up $260 million to buy 25% of Olivetti, with an option to expand its share up to 40%. De Benedetti considers the agreement "a brilliant alliance," formidable enough to take on IBM.

Olivetti has gained access to AT&T's famed Bell Laboratories in New Jersey, which employs some 13,000 technicians. The Italian company brought its own valuable dowry to the union, specifically an international marketing network that AT&T lacked. The two firms have begun to sell each other's products in their respective geographic areas. AT&T will introduce its Dimension System 85, an in-house telephone exchange, in Europe through its new partner. Olivetti in turn is providing AT&T with electronic work stations and personal computers for sale in the U.S.

De Benedetti continues to pursue foreign partners. Last week Olivetti announced that Xerox will now market Olivetti's M-24 personal computer in the U.S. and Canada under the Xerox name. Market experts estimate the U.S. firm may sell some 30,000 of the machines a year. At the same time, Rank Xerox, the firm's British operation, will work with Olivetti to produce and market equipment in Europe and Asia.

The attempt to make Olivetti a world leader in electronics seems like a logical corporate strategy. But what about De Benedetti's interest in both electronics and food? The chairman insists that it is a marriage of perfectly suited partners. He notes that the food industry has a low rate of expansion, but great stability and a consistent cash flow. The electronics business, on the other hand, has just the opposite: a rapid rate of growth, but also high risk. Says De Benedetti: "The two activities, in a sense, are perfectly integrated."

With reporting by Walter Galling/Rome