The Milan stock market made the announcement just hours after Olivetti's $65bn offer closed.

Olivetti appears to have won just over 51% of the shares.

Olivetti boss Roberto Colaninno, who masterminded the takeover, simply said, "I'm happy."

Putting a brave face on defeat, TI's managing director Franco Bernabe said:

"The company is great and has great growth potential. It emerges from this affair stronger and more credible."

Olivetti's victory is now complete in Europe's biggest contested takeover battle.

Olivetti gained the support of Telecom Italia's biggest institutional shareholders, including insurance companies Generali and INA and bank San Paolo, who announced they had supported the bid.

The takeover could spur further merger moves across Europe, which traditionally has not seen contested bids.

Some of the biggest telecoms firms, including BT and Cable and Wireless, could now become the target of hostile bids.

Nerio Nesi, economics spokesman for the Party of Italian Communists, warned that the victory would mean thousands of job losses.

"This is the blackest of days," he said.

Bitter battle

The three month takeover battle was one of the most bitter on record.

On Friday Olivetti made a final 'now or never' appeal to shareholders of Telecom Italia to accept its hostile takeover offer and give it full control of the Italian utility giant.

Telecom Italia's Franco Bernabe, who had only taken over in November, fought with every tactic at his disposal to remain in charge.

TI even tried to merge with Germany's Deutsche Telekom, but the $65bn Olivetti offer was more lucrative for TI shareholders, at 11.5 euros per share.

The Italian government, which owned a "golden share" in TI and could block any takeover, was itself unhappy about the merger with the German company.

Although that pan-European deal is now unlikely to go through, it is likely that the wave of consolidation in the telecoms industry will accelerate.

Italian Senator Claudio Petruccioli, chairman of the Telecoms Subcommittee, said:

"This is an event that changes the traditional Italian scene. After this nothing will be as it was."

Rumors of success

The battle has been characterised by accusations and counter-accusations from TI chief Franco Bernabe, who accused Olivetti of using Machiavellian tactics to win control and threatened legal action.

One example was a leaked report which suggested that Olivetti was on the verge of success with an analysts tally of likely acceptances close to 50%. However, major shareholders among Italy's major banks and insurers held out until the final hours before the deadline.

On Thursday, a "senior financial source" familiar with the offer told the Reuters News Agency nearly half of TI's shareholders had indicated they would accept the takeover bid.

He said that a "shadow book" kept by banks in charge of handling the offer showed intended offers of between 42% and 47%.

Telecom Italia protested, asking the stock exchange to suspend the bid because of "reiterated and serious violations of the rules in matters of correctness and transparency".

Olivetti has denied being the source of the leak. It took out full page advertisements in newspapers on Friday, declaring: "It's now or never. This is your last chance. Run to your bank or broker while there's still time."

Giant killer

Olivetti's turn-around has been remarkable. The company was nearly bankrupt a few years ago, having failed to make the transition from a typewriter to a computer company.

It then moved into telecoms, starting Italy's second biggest mobile phone company - which it will now sell to Germany's Mannesmann to fund its bid.

Olivetti was helped by the support of some of Italy's key financiers, including the Agnelli family who own FIAT and the influential merchant bank Mediobanca.