Gianni Agnelli's Latest Salvo

By challenging HdP, he keeps the heat on Mediobanca

A new front has opened in the battle for control of Italy Inc. Pitted against each other in this contest are two of Italy's most powerful industrial titans: Gianni Agnelli, honorary chairman of Fiat, and his former protégé, Cesare Romiti, who with his son Maurizio now runs Holding di Partecipazioni Industriali, a Milan-based publishing and fashion conglomerate.

Hostilities broke out in late June, when a pack of disgruntled Fiat-led shareholders staged a revolt, fueling market expectations of a hostile bid and driving HdP's share price up 10% in one day. The rebels, who own some 16% of HdP, have given management a six-month ultimatum: Sell the loss-making fashion units, which include Italian couturier Valentino, and focus on publishing.

The uprising at HdP is the second attack that Agnelli, 81, has launched against companies once firmly controlled by Mediobanca, the secretive Milanese merchant bank that for decades held sway over Italian business through a system of arcane cross-holdings and alliances. On July 2, a Fiat-led consortium announced a $4.3 billion hostile bid for Montedison, an agro-energy conglomerate also in the Mediobanca web. Global competition and the death of powerful Mediobanca founder Enrico Cuccia last year have eroded the backroom consensus that Mediobanca needs to maintain power, putting its dozens of companies into play.

HdP is one of the most vulnerable of the Mediobanca holdings--thanks to missteps by the Romitis. Last year it reported a $33 million profit, down 18% from 1999, on sales of $2.8 billion. But the fashion units have lost a combined $435 million in the last three years. Publishing unit Rizzoli Corriere della Sera (RCS), which puts out Italy's largest newspaper, is also underperforming: It posted a 6% return on sales last year, half the European industry average. "A lot could happen if management at HdP were replaced," says Stefano Petroni, an analyst at BNP Paribas in Milan.

For now the elder Romiti, president of HdP's publishing business, and his son, a former Mediobanca executive, have the backing of those shareholders led by Mediobanca. But odds are that the increasingly aggressive drive in Italy to improve shareholder value will ultimately force the Romitis and Mediobanca to cede control of HdP. Indeed, as debts mount in his business units, the elder Romiti's once-legendary influence in Italian and political circles is ebbing rapidly. "It's the end of the Romiti era," says one Milan executive.

For Cesare Romiti, 78, defeat will taste all the more bitter, since his undoing would come at the hand of a former benefactor. For 24 years, starting as chief financial officer in 1974 and ascending to CEO in 1980, Romiti ruled Fiat like a Roman emperor. But in 1998 he accepted a lucrative retirement package that landed him in the driver's seat at financial holding company Gemina, which then took a major stake in HdP.

GRANDIOSE VISIONS. Running HdP turned out to be a family affair. Backed by his father's new fortune, Maurizio Romiti set out to build a luxury-goods empire to rival France's $11 billion LVMH Moet Hennessy Louis Vuitton. HdP snapped up Valentino for $300 million in 1998, a price widely considered too high. Last June it bought U.S. menswear designer Joseph Abboud.

But the grandiose visions of the Romitis have fallen flat. Although Valentino managed to boost sales 50% last year, analysts estimate its losses at $18.5 million. Insiders say a deal to spin it off sis imminent. Possible buyers include Italian luxury-goods champions Gucci and Prada. Deals to unload sports apparel maker Fila and clothing manufacturer Gft Net should follow.

Romiti and son don't have much time. The three-year pact they signed with rebellious shareholders can be terminated on Dec. 15. "If they fail to sell the fashion units by then, Agnelli will lead a takeover attack," says Petroni. The Romiti era may well close with a big bang.

By Gail Edmondson in Rome

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