Power Struggle, Italian-Style

A Machiavellian battle over who'll run insurance giant Generali

Assicurazioni Generali's ornate headquarters overlooking the Adriatic in Trieste is truly magnificent. But the European financiers who mount the steps to attend the 170-year-old Italian insurance giant's annual shareholders' meeting on Apr. 28 won't be easily distracted. They'll be engaged in an engrossing exercise--anointing the next chairman of Europe's fourth-largest multiline insurer. The Generali leadership is in play at a time of tectonic shifts in the Continent's financial geography. Increasingly, banks and insurers are encroaching on one another's traditional territories and merging to better exploit Europe's single market. With a market capitalization of $39.5 billion, Generali is one of the few Italian financial companies with the heft to be a cross-border player. The $14 billion it has spent on acquisitions in the past five years have made it a power in Austria and Germany, where it owns AMB, the No. 3 insurer, and 10% of Commerzbank. Now it's expanding in France and Spain, where it sees rich potential in asset management and retirement savings.

But the boardroom showdown in Trieste won't be an earnest struggle to find a leader to secure Generali's place in a fast-changing world. Instead, it promises to be a vicious power struggle between its main shareholders in the old Franco-Italian business style, motivated by historic ties and grudges. In the end, the fight could weaken Generali at home and abroad.

Pitted against each other for the chairman's job are Antoine Bernheim, 76, a powerful partner at French investment bank Lazard Frères & Co., who was removed from Generali's chairmanship in 1999, and his successor, Generali Chairman Alfonso Desiata. A serious compromise candidate is Generali Chief Executive Gianfranco Gutty.

Bernheim got ousted when he ran afoul of Mediobanca, the powerful and secretive investment bank that is Generali's largest shareholder, with a 14% stake. Bernheim's Lazard had poached a Mediobanca executive, who then tried to take business from Mediobanca in Italy. Bernheim took the fall for this treachery. Bernheim wants his job back, and to get it, he has enlisted the support of his friend Vincent Bolloré, a French raider who just paid $150 million for an 18% stake in a consortium that owns 14% of Mediobanca. Bernheim and Bolloré want Mediobanca to champion his reinstatement. A four-person committee of Mediobanca shareholders and executives decides how the Milan bank votes in Trieste. But they'll likely wait until the last minute.

EGO TRIP? Will the Generali board members simply weigh the qualifications of the two contestants? Nothing in this Machiavellian scene is that straightforward. Desiata presided over a 74% rise in Generali's net profit and a major acquisition in his first year. Yet he angered Mediobanca CEO Vincenzo Maranghi by collaborating with two other Italian banks. Maranghi, say bankers in Milan, would rather mend fences with his old enemy Bernheim than back Desiata.

Such maneuverings dismay Generali's Anglo-Saxon shareholders. "Bernheim is driven by his huge ego," says one fund manager. "He wants to say: `I'm back. You can write me off at your peril."' And Maranghi, whom one Milan attorney describes as "a man who meets 10 people and makes 11 enemies," is mainly driven by his wish to preserve Mediobanca's once supreme influence in Italian business. (Maranghi declined to comment.) That power has been waning since the death of founder Enrico Cuccia last year. The politicking has also scandalized senior staff at Generali, says one company insider. They think Desiata should keep his job. Moreover, they say the machinations threaten the partnership between Desiata and CEO Gutty, which has weathered restructuring and the acquisition of Italian insurer INA.

True, the group trails rival insurance giants AXA of France and Allianz of Germany, which have moved more aggressively into fund management and the vast U.S. market. And analysts say Generali's profit rise last year was more Gutty's doing than Desiata's. But Desiata is pushing the group deeper into money management and expanding globally. And Bernheim, who made a big push into Germany last time around, has yet to publicly articulate a new strategy. (He couldn't be reached for comment.)

Analysts say the anachronistic spectacle in Trieste foreshadows the unraveling of Italy's old financial power structure. "There are not two squads in this battle," says Enrico Cisnetto, the Milan-based author of several recent books on Italian capitalism. "Everyone is against everyone. In this game, the player who gets Generali becomes the most important." He notes that if Mediobanca, which once had the last word in any Italian financial deal, can't impose its candidate on its most important shareholding, it faces obsolescence and, eventually, dismembering.

INTRIGUE. And Maranghi may not succeed. For one thing, if the choice boils down to Bernheim or Desiata, Antonio Fazio, the influential governor of the Bank of Italy, would vote his 4.5% share for Desiata, according to investment bankers in Milan. And it's hard to imagine other big Italian shareholders opposing him. "No one can find a reason why a man of [nearly] 80 from France should come back and rule a company he was booted out of two years ago," says a Milan financial editor.

There's also the distinct possibility that Maranghi and his cohorts, in their eagerness to oust Desiata, will nominate Gutty rather than Bernheim. Gutty would also probably be acceptable to Fazio. And Generali's senior executives would doubtless breathe a sigh of relief. Turmoil in the boardroom is the last thing Generali needs as it fights for market share in the increasingly competitive European marketplace.

By David Fairlamb in Frankfurt and Gail Edmondson in Rome, with John Rossant in Paris

— With assistance by John Rossant

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