Court Ruling Challenges SAI-La Fondiaria Merger

November 1, 2002

An Italian court has dealt another blow to the ongoing merger plans between SAI and La Fondiaria, aimed at forming the country’s third largest insurance group. This week’s ruling overturns a finding by Consob, the Italian Stock market regulative body, that permitted SAI to sell part of its 29.9 percent stake in la Fondiaria to a group headed by J.P. Morgan Chase.

Consob had ruled that SAI and Mediobanca, the powerful Italian investment bank, effectively controlled 40 percent of La Fondiaria shares “in concert.” The ruling forced SAI to either make a tender offer to all of La Fondiaria’s shareholders – at the same price – or sell some shares, which it elected to do. Shortly after selling them to the Morgan group, however, SAI entered into a call/put option arrangement, guaranteeing that it could reacquire the shares, which it elected to do shortly after it forced through the merger.

The arrangement was challenged at the time by the Bermuda-based Liverpool fund, which owns around one percent of La Fondiaria’s shares as being a sham transaction, which never really divested control of the 40 percent stake in an independent group. Consob ruled last May that it did, and opened the way for the merger, but Liverpool challenged the ruling in court, and has apparently won a preliminary victory.

The whole transaction may have finally become too much even for Italy’s convoluted financial system to accept. It has been challenged on another level by investigators looking into the ties between Mediobanca, and Generali, Italy’s largest insurance company. The investment bank is Generali’s largest shareholder, owning slightly more than 13 percent of the insurer. It’s widely seen as pulling the strings behind the scenes, and was instrumental in the resignation of Gianfranco Gutty in September as Chairman. (See earlier articles).

Gutty recently denied, however, that his decisions as CEO and as Board Chairman were made at the direction of Mediobanca. In a newspaper interview he indicated that, although he consulted with its executives from time to time, he made no decisions that were not in the best interests of Generali.

He also said it was up to the investigating authorities to decide who controls Generali. Both the European Commission’s anti-trust regulators and Italian authorities are trying to do just that. They launched an investigation in mid-October to examine the relations and control exercised by Mediobanca over Generali, La Fondiaria, SAI, and Primafin, an industrial group, which is SAI’s largest shareholder, and has a close banking relationship with Mediobanca.

A number of analysts have indicated that the SAI, La Fondiaria deal might have finally gone over the line in terms of back room deals, designed to keep family control of many of Italy’s most important companies. The result is a call to enforce stock market and anti-trust regulations and provide greater transparency to protect shareholders, and limit the power of patriarchal groups, especially Mediobanca, to control Italian finances.

It’s very hard to predict whether that will happen, or not, but at least Liverpool, and the other shareholders in La Fondiaria, can now hope that they will get an adequate offer for their shares, rather than being forced to sell them at less than market value.

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