Italian Investors Feud Over Biggest Builder Impregilo

Italian Families in Showdown for Control of Builder Impregilo
Buses enter Terminal Gianicolo an underground parking garage constructed by Impregilo near the Vatican in Rome. Photographer: Victor Sokolowicz/Bloomberg

The fate of Impregilo SpA, Italy’s biggest construction contractor with projects from Brazilian highways to the Panama Canal, was postponed until July 17 after the company’s two biggest investors clashed at a shareholder meeting today.

The Gavio family, with interests in highway concessions in northern Italy, controls Impregilo through a stake of just less than 30 percent. Salini SpA, a construction company led by Pietro Salini, also has built up a stake of almost 30 percent in Impregilo in the last nine months and called an investor meeting to revoke the Gavio-backed board and replace it with directors headed by Claudio Costamagna, a former chairman of European investment banking at Goldman Sachs Group Inc.

Salini may be gaining the upper hand in the tussle after investors rejected Gavio’s request to delay a vote on the board revocation until September. “We will show up even more feisty,” Salini said after today’s assembly in Milan attended by investors representing about 81 percent of Impregilo’s capital.

Impregilo, with a market value of 1.3 billion euros ($1.58 billion), builds tunnels, subways, dams, roads and is currently working on the expansion of the Panama Canal. Its main highway concession asset is a 29 percent stake in Brazil’s Ecorodovias, the manager of five toll roads in the country. Gavio and Salini have waged a proxy battle that gives minority shareholders such as Amber Capital LP a rare opportunity in Italy to decide the outcome. Amber owns a stake of 8.5 percent of the company.

Family Business

“I know the company better than Salini does,” Beniamino Gavio, 46, who heads his family’s business, said in a July 5 interview. “We have a long-term strategy that’s not comparable with Salini’s. We believe the right model is concessions and construction together.”

Impregilo shares have risen 71 percent since Salini announced its first purchase on Oct. 4, the best performance in Italy’s benchmark FTSE MIB Index in the period. Some analysts are concerned the shares offer little upside after their recent performance and because of the risk the power struggle may result in a stalemate.

“It’s possible that the battle for control of the group could be temporarily or definitively over and that investors will go back to fundamentals,” Banca IMI analyst Bruno Permutti wrote in a note on June 25, when he cut his recommendation on the stock to “hold.”

Share Buyback

At the center of the shareholders’ tussle are proposals of unlisted Salini to sell Impregilo’s highway concessions, pay a special dividend of as much as 800 million euros and merge the two construction businesses, targeting 7.5 billion euros of revenue by 2015. “It’s a unique opportunity for Impregilo and Salini to tie up,” Salini, 54, CEO of the namesake company, said in an interview on July 10. “It’s a sound proposal for Impregilo.”

Gavio opposes a combination and wants Impregilo to keep investing in highways. He’s proposed a share buyback of up to 300 million euros and an extraordinary dividend of at least 100 million euros, if the company has enough cash. Impregilo has an offer of 763 million euros for its 19 percent stake in Ecorodovias.

Gavio’s Autostrada Torino-Milano SpA bought out partners in IGLI, Impregilo’s largest shareholder, in March after seven years of co-management.

Mandatory Bid

If Salini gets control of the board, Gavio probably has enough shares to veto any extraordinary operation such as a merger of the two construction companies. Both Gavio and Salini have ruled out a full bid for Impregilo, which could cost about 1 billion euros, and have said they don’t want to sell their stakes. Obtaining a 30 percent stake would require a bid for the entire company, according to Italian law.

“I won’t make a bid,” Gavio said. “When there were conditions for a bid I couldn’t do it” because of governance clauses with other partners. “The fear of a stock slide now is there. ”

Gavio said a buyback would be “a lifeline for the market and partly for the sustainability of the stock.” CA Cheuvreux raised its recommendation on the stock to “outperform” from “underperform” on July 10, saying the “aggressive buyback” and extraordinary dividend will support the shares.

Italian Capitalism

The two families have spent the last two months in a war of words and legal actions. Salini argues that Impregilo’s board should be replaced because it hasn’t created enough shareholder value and it hasn’t respected the company’s corporate mission. Gavio counters that his rival is seeking control of the board in order to push through a merger that would use proceeds from the Ecorodovias stake sale as a guarantee for bank financing.

The Gavios and Salinis are examples of Italy’s family-style capitalism. Gavio, whose roots are in Tortona, an agricultural town between Milan and Turin, said he has a “family responsibility” to keep the business going and has a “completely different business approach, lifestyle and mentality” from Salini’s.

The Salini family is embroiled in legal disputes over control of the business, which Pietro Salini controls. The Rome-based company is Italy’s third-largest construction contractor.

“Families are much more complicated than companies,” Salini said. “The family issue would not be a problem. In the end, decisions will be taken unanimously.”

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