Commentary: A Hostile Bid That's Dandy for Italy

By Gail Edmondson

Fiat honorary Chairman Gianni Agnelli knows a good deal when he sees one. On July 2, he teamed up with three Italian banks and three foreign shareholders--financier Roman Zaleski, Germany's Deutsche Bank, and Electricite de France (EDF)--in a hostile bid for $12.2 billion Italian conglomerate Montedison, which controls one of Italy's major producers of electricity. By taking the lead in the consortium, Agnelli stamped a controversial takeover with the Fiat imprimatur, neutralizing political resistance. By July 3, the consortium had won control of 52% of Montedison, giving Agnelli control over one of Italy's prized industrial assets, with a powerful position in the newly deregulated utility market.

At the same time, the Italian patriarch opened fire on the very system of Italian capitalism that nurtured his family's fortunes for half a century. Montedison was controlled by Mediobanca, the Milanese merchant bank that once ruled Italian industry with an invincible grip. "This bid marks the end of Italy's salotto buono," says Carlo Alberto Carnevale-Maffè, professor of strategic management at Bocconi University in Milan. The salotto, or "drawing room," refers to the exclusive club of Italian bankers and industrialists who conferred in secret over major decisions. With Agnelli publicly attacking Mediobanca, says Carnevale-Maffe, the salotto is giving way to the piazza del mercato, the place where negotiations are done in the open.

As foreign capital begins to stalk undervalued Italian conglomerates, the newly elected government of Berlusconi may be tempted to thwart takeovers that don't include an Italian lead investor. But Berlusconi's team should think twice. Interfering would undercut true competition, not to mention the spirit of a single European market. An influx of foreign capital is just what Italy Inc. needs to recreate a class of global players.

Indeed, Gianni Agnelli himself has gradually moved from the salotto buono to a more market-based philosophy as global competition eroded the Italian auto maker's market share, forcing the sale last year of 20% of Fiat Auto to General Motors. Of course, it was sweet revenge to strike a blow against Mediobanca: Two years ago, Mediobanca founder Enrico Cuccia backed Olivetti's hostile takeover of Telecom Italia, thwarting the Agnelli clan's ambition to get control of the telecom.

Fiat's assault exposes Mediobanca's inability to continue controlling a galaxy of industrial holdings through minority stakes and alliances that are weakening or defunct. Mediobanca's defeat is sure to encourage a slew of corporate raiders to strike at choice Italian assets which until now were off limits, such as insurer Assicurazioni Generali and publishing and fashion conglomerate HdP.

MOMENT OF RECKONING. A rapid shakeout and the fresh injection of foreign capital would strengthen Italy's industrial base and spur investment faster than any tax cut or subsidy the new government could cobble together. "If the market has significant power, conglomerates will be taken apart. Whoever has more money will win," says Phil Cuneo, partner at consultancy Bain Cuneo & Associates in Milan.

It is also the moment of reckoning for Mediobanca. A rearguard action by Chief Executive Vincenzo Maranghi to defend Mediobanca's holdings will only prolong a battle he is sure to lose. Sources close to Deutsche Bank say that bank boss Rolf E. Breuer sees the Montedison bid as a chance to hasten Mediobanca's breakup. "Mediobanca is the ultimate prize," says a senior German banker.

Investors have been bracing for a showdown in Italian finance since Cuccia's death one year ago. "This is a massive blow to Maranghi's plans and ability to throw his weight around in the future," says one Milan investment banker. "His defenses have proven to be weak." So much the better. It's time Italy got on with its market revolution.

Edmondson covers Italian business and politics from Rome.

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