Saipem Managers to Be Quizzed by Regulator on Record Share Drop

Saipem SpA managers will meet Italy’s market regulator Consob to discuss the announcement that caused a record plunge in shares of Europe’s largest oil-services company.

The meeting will take place on Feb. 4 as part of the investigation into events leading up to this week’s statement that profit this year would be lower than expected, a official at the regulator said today.

An institutional shareholder sold almost 10 million shares, or 2.3 percent of the company, on Jan. 29 for more than 30 euros a share, said people with knowledge of the matter. The seller, who hired Bank of America Corp. to manage the sale, hasn’t been named. The next day, Saipem shares plummeted after an announcement that profit this year would be less than half the amount expected.

The week’s events, which follow the departure of the chief executive officer in a corruption investigation last year, wiped more than 4 billion euros ($5.5 billion) from Saipem’s value and left buyers in the share sale with more than 100 million euros in losses. The crash is an embarrassment for Eni SpA, Italy’s largest oil company and Saipem’s top shareholder.

A spokesman for Eni said yesterday that clarity was needed on the Saipem trade. Speaking on Italian TV, he defended the company’s management as well prepared, and called the stock decline an “emotional reaction”.

Rating Cut

The company had its rating cut by at least 11 brokers after announcing the new profit outlook and saw its shares fall to 20 euros, the lowest price since November 2009. Shares were down 2.9 percent to 20.29 euros at 2 p.m. today in Milan.

Saipem predicted an 80 percent drop in 2013 earnings before interest and tax at its onshore business because of reduced activity and delays to contract awards in the Middle East, Nigeria, Algeria, Venezuela and Iraq.

The company also forecast a 70 percent Ebit decline at its offshore operations due to reduced activity and delays, and to contracts entered into at lower margins in Brazil.

Analysts said they are worried there may be further revelations to come.

“All their activities from the Middle East to South America were worth less than they said, that’s a significant loss of credibility,” said Edoardo Liuni, an analyst at in Rome. “If you add their legal troubles with Consob and in Algeria the picture is disturbing and could continue to hurt the stock.”

Future Writedowns

While new CEO Umberto Vergine said on a conference call margins will rebound next year, analysts at Exane BNP Paribas wrote in a Jan. 30 report entitled “Shaken to the core” that they didn’t expect a return to 2012 margins until at least 2015. The same day analysts at Nomura Holdings Inc. said they were concerned about future writedowns due to low bids on contracts to beat rivals.

A probe into contracts in Algeria that led to the resignation of former CEO Pietro Franco Tali on Dec. 5 has also raised concerns even after denials of any wrongdoing by the company.

“Whether financial penalties emerge or not, uncertainty over the investigation maintains an element of risk in the stock,” Morgan Stanley analysts said in a Jan. 30 report.

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