I’ll explain the war between Caltagirone and Mediobanca on Generali

23 January 20222 years ago babelfish

What gives the Generali dispute a flavor of yesteryear Italian capitalism are the contenders and their motivations. The opinion of the economist Alessandro Penati. Excerpt from Domani Quotidiano

What gives the Generali dispute a flavor of yesteryear Italian capitalism are the contenders and their motivations.

Mediobanca wants to defend its role in Generali, a stake it has held since time immemorial, almost as if it were a drawer or a holding company. But it is an investment bank and it is strange that it immobilizes so much capital in a company that is not instrumental to its business in the long term, when the trend on the market is the opposite: freeing up capital to make it available for more profitable employment opportunities.

The only plausible reason is that Mediobanca derives “private benefits” from the investment, that is, relational and information advantages deriving from the appointment of the CEO and from the position in the management body of one of the major institutional investors.

It is legitimate that Francesco Gaetano Caltagirone and Leonardo Del Vecchio want to protect their investment, but it is strange that they act as an activist fund or a corporate raider aiming to overthrow the top of a company to gain control.

For funds and raiders this is an institutional activity, but Del Vecchio and Caltagirone are first and foremost entrepreneurs: the former presides, as controlling shareholder, the multinational Essilux, just out of a troubled merger, with a new CEO, in a moment of major changes in consumer behavior, technology and production systems; the second, it controls several listed companies, ranging from cement to publishing, even though it has left the management to its children.

The mix between entrepreneurs and finance, especially in a position of control, has never produced great results and it is precisely for this reason that the ECB has prevented both from exercising an active role in the governance of Mediobanca, of which they are significant shareholders, even though contending for control of Generali, in an unhealthy tangle of interests.

It is reasonable to assume that Caltagirone and Del Vecchio also point to those "private benefits" that Mediobanca defends. This would explain the absence of documented arguments for and against the current summit, and precise proposals for the assembly, as an activist fund would do.

For Mediobanca the managing director Philippe Donnet deserves the renewal having "managed well", but he does not say on the basis of which parameters. Caltagirone and Del Vecchio criticize him because Generali's size looks bad compared to its major competitors, but they don't explain how they would make it “big”.

In the six years in which Donnet has been at the helm of Generali, the stock on the stock market has followed the European index of the sector: in line with Axa, but 13 per cent worse than Allianz and 30 per cent in Zurich, to remain among the large groups.

According to analyst consensus, Generali will have a lower return on equity this year than Allianz and Zurich (9.6 per cent, compared to 10.2 and 13.8) and lower expected earnings growth in the future (as evidenced by a lower expected price / earnings ratio).

Even if the management certainly cannot be defined as deficient, there would therefore be ample room to create value in Generali. But how? Certainly not through the large acquisitions that Caltagirone and Del Vecchio would seem to hope for, because the regulation places a limit on the leverage of insurance companies, and because they would dilute shareholders too much if done with shares.

The path of profitability and prospective earnings growth is more viable, also to increase the multiples at which the market values the stock.

(Extract from an article published in Domani Quotidiano; here the full version )

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/vi-spiego-la-guerra-fra-caltagirone-e-mediobanca-su-generali/ on Sun, 23 Jan 2022 14:02:12 +0000.