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Pirelli Capital Increase



INCREASE IN SHARE CAPITAL UP TO APPROXIMATELY 1,080
MILLION EUROS APPROVED

PROCEEDS TO BE USED TO INCREASE
THE CAPITAL THAT PIRELLI WILL UNDERWRITE IN OLIMPIA, THUS
INCREASING THE INVESTMENT IN THE STRATEGIC AREA OF
TELECOMMUNICATIONS

LEADING BANKS ARE WILLING TO
PROMOTE A GUARANTEE CONSORTIUM TO ENSURE THE SUCCESS OF THE
TRANSACTION


Milan, December 7, 2004 The Board of Directors of
Pirelli & C. S.p.A. met today and approved the terms of the
capital increase transaction of the subsidiary, Olimpia S.p.A.,
intended to increase investment in Telecom Italia and to increase
its assets.


The Board has therefore resolved to recommend that the
Shareholders General Meeting in an extraordinary session
approve the capital increase of up to approximately 1,080
million euros
through issue of up to approximately 1.5
billion ordinary share options to offer to ordinary and savings
shareholders at the rate of 2 new ordinary shares for every
5 of any other type of share held, at the unit price of 0.70 euro
per share
, of which 0.18 euro as a premium. The issue
price of the new shares was determined by considering the
performance of the share in the last three months and the size of
the transaction.


The resources resulting from the increase in share capital will be
used to: subscribe the capital increase of 2 billion euros of
Olimpia that will enable the company not only to increase the
investment in Telecom Italia SpA, but also to eliminate the
dilution caused by the announced merger of Telecom Italia. The
Board deems that this transaction due to the optimisation
of the asset and financial structure of the Telecom Italia Group
and the ensuing industrial efficiency is an opportunity to
create value for Pirelli & C. Shareholders. Pirelli & C. is
expected to benefit from the corporate streamlining of the Telecom
Italia Group also in terms of cash flows.

Specifically, resources from the above-mentioned
capital increase will be used to: underwrite the amount pertaining
to Pirelli & C. (50.4%) of the increase in share capital of
Olimpia. Pirelli & C. S.p.A. also made a commitment to
subscribe the remaining shares of shareholding banks.

As regards the exact amount of the increase in
share capital, to date, there are 1,554,286,718 Pirelli & C.
2003 2006 ordinary share warrants in circulation, listed on
the Italian Stock Exchange, valid for subscription (at any time
before June 30, 2006) of one new Pirelli & C. S.p.A. share per
every four warrants held, at a price of 0.52 euro per share.

The amount of the increase in capital was
calculated by assuming that all warrants in circulation will be
exercised no later than December 31, 2004 in order to participate
in the new increase in capital and therefore, assuming the issue,
before the launch of the capital increase transaction, of up to
388,571,679 new ordinary Pirelli & C. SpA shares for a total
estimated amount of up to about 202,057,273 euros.

Cam Finanziaria S.p.A. has undertaken to
subscribe its entire share of 25% in Pirelli & C. share
capital.

The Pirelli & C. Share Block Syndicate have
resolved to accept the participation in the Syndicate of Banca
Intesa and Capitalia that will each bring 1% of the share capital
of Pirelli & C. SpA. before the capital increase, which Camfin
will transfer to them by drawing from the shares it holds outside
the Syndicate. They also expressed their general interest in
subscribing pro-quota the increase in share capital and exercising
all the warrants held.

Banca Caboto (Gruppo Intesa), J.P. Morgan, MCC
(Capitalia Group), Mediobanca, and Ubm have declared their
willingness to promote the formation of a consortium to ensure the
success of the transaction.

The Board of Directors has granted the Chairman
the mandate to call the Shareholders General Meeting to pass
resolution on the above-mentioned increase of capital, which should
take place in the last ten days of January 2005. The exact date
will be published according to regulations in force. At present,
the timing of any dividend payment is not expected to be
influenced.

In relation to the new organizational structure
of the Pirelli & C. Group resulting from the business strategic
optimization plan announced on November 11, today Giovanni Ferrario
has stepped down as Managing Director and General Manager of the
Company. The Group would like to thank Giovanni Ferrario for the
work he has performed in over thirty years.

The business areas previously headed by Ferrario
will report to Managing Director, Carlo Buora. The Tire Division,
headed by General Manager, Francesco Gori, will report directly to
the Chairman for matters concerning the Division strategies and
business development.

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