Pirelli, the owner of the holding company in control of Telecom Italia (TI), agreed early this week to sell its TI stake to a consortium that links Telefonica of Spain with four local Italian firms in a transaction valued at U.S. $5.6 billion. The pact appears to satisfy the concerns of Italian government officials who had sought to keep TI out of foreign hands and who had protested earlier plans by AT&T and its partner, America Movil (AM), to acquire joint control of Olimpia—the holding company that possesses voting control over TI. Citing “regulatory uncertainties,” AT&T terminated its negotiations with Pirelli earlier this month. The agreement reached last Saturday also deals a blow to AM, which had held out hopes of acquiring a portion of Pirelli’s stake in spite of AT&T’s withdrawal. Telefonica is paying U.S. $3.14 billion for a 42.3% stake in Telco SpA, a consortium that also includes Italian insurer Generali, Italian banks Intesa Sanpaolo and Mediobanca, and the Benetton family. Under the deal, Telco would purchase 100% of Olimpia, and each of Telefonica’s Italian partners would add their individual TI shares (consisting of 5.6% of TI’s equity) to the Telco consortium. As a result, Telefonica would end up with a 10% economic stake in TI, and Telefonica’s Italian partners, as a group, would emerge with 13.6% economic interest. Telefonica would also have the right to nominate two of TI’s directors. Italian Prime Minister Romano Prodi, a standard bearer in the movement to keep TI under Italian control, welcomed the news, declaring: “it is good to see that Italian financial institutions have shown a willingness to make a commitment.”