Orsi was jailed on accusations of corruption and tax fraud, prosecutor Eugenio Fusco said today by phone from Busto Arsizio, Italy. Bruno Spagnolini, CEO of the AgustaWestland helicopter unit, was placed under house arrest earlier today and faces the same charges, Fusco said. Authorities are investigating alleged illegal payments tied to a 560 million-euro ($753 million) contract for the sale of 12 AW101 helicopters to India in 2010. The company has denied wrongdoing.
Orsi, 67, has been undertaking the company’s biggest revamp in at least a decade and is under pressure to deliver 1 billion euros ($1.3 billion) in asset sales to reduce more than 4 billion euros in debt. The company had been pushing to dispose of its Ansaldo Energia business, with the goal of announcing a buyer before Italian elections begin on Feb. 24.
The arrest increases “the risk of material disruption in the company’s strategy and day-to-day management as well as a delay to its restructuring and asset disposal plan,” Fitch Ratings said today in an e-mailed statement announcing it may cut its BBB- rating.
Finmeccanica slumped 7.3 percent, the most in more than a year, to 4.41 euros in Milan. The stock was repeatedly suspended for excessive volatility. Italy’s market regulator has banned short selling of shares through tomorrow.
The Italian company, referring to the arrests only as “precautionary measures,” said Finmeccanica will continue to pursue its operations “as usual” and that it expresses support of the managers, according to an e-mailed statement.
Evidence against Orsi is “inconsistent” and the arrest is “unjustified,” the CEO’s lawyer, Ennio Amodio, said in an e- mailed statement. Finmeccanica’s board will tomorrow temporarily give management powers to Chief Operating Officer Alessandro Pansa, Radiocor reported, citing unidentified people close to the situation.
The Milan offices of Italy’s biggest defense company, Orsi’s house and premises of AgustaWestland in Italy were searched, two people familiar with the probe said, who asked not to be identified because the investigation is continuing.
The Indian Defense Ministry has asked the country’s Central Bureau of Investigation to probe the charges. The contract signed with AgustaWestland includes “specific contractual provisions against bribery and the use of undue influence as well as an integrity pact,” the ministry said in an e-mailed statement.
The probe follows at least two other corruption investigations involving the Rome-based defense contractor. Former Chairman Pier Francesco Guarguaglini resigned after he was targeted in one probe that led to criminal charges against his wife, who ran a Finmeccanica unit. Guarguaglini said in a Jan. 17 interview with Il Sole 24 ore that he was acquitted.
“This could make Orsi’s position extremely fragile,” said Christophe Menard, a Paris-based analyst at Kepler Capital Markets.
Standard & Poor’s cut Finmeccanica’s debt rating below investment grade last month over concern that asset sales would not sufficiently improve capital levels. The company will hold a board meeting on Feb. 21 to review Samsung’s offer for Ansaldo Energia, Antonio Apa, Secretary General of labor union Uilm said Feb. 6.
The board “will not be in a position to decide on the sale of assets such as Ansaldo Energia or Ansaldo Breda and this worries us as Mr. Orsi’s strategy was focused on avoiding any capital increase and disposing of peripheral assets,” Luca Conti, an analyst at Banca Akros in Milan, wrote in a note to investors. Conti cut his recommendation on the stock to hold from accumulate.
“There is an issue with the governance of Finmeccanica at the moment and we will deal with it,” Italian Prime Minister Mario Monti said today on state-owned RAI television.
Finmeccanica received a C grade last year when Transparency International, the non-profit watchdog, issued its first anti- corruption index of defense companies. That mark indicates the group found only “moderate” evidence that anti-corruption systems were in place.
Orsi has previously denied any wrongdoing in the case and said he would not resign.
“Orsi has done a fantastic job,” said Nick Cunningham, an analyst at London-based Agency Partners. “Even if he has to go, Orsi has put in place many of the restructuring steps the company has needed.”
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