Generali: tussle in Trieste requires conclusive outcome

Tycoons, bankers and bosses are vying for control of Generali, Italy’s largest insurer. This acrimonious and, at times, personal battle has divided the Italian financial establishment. The outcome will matter far beyond this tight circle. Generali is worth about €30bn, employs roughly 75,000 people and serves approximately 67mn customers.

Construction tycoon Francesco Caltagirone leads rebels who believe faster expansion and deeper cuts would double earnings growth. Chief executive Philippe Donnet counts on investors with 18.7 per cent of the shares to support his more conservative plan.

Minority shareholders have the task of picking a winning side, which will be revealed at the annual meeting on April 29. Lex believes one camp deserves conclusive approval.

Caltagirone and eyewear mogul Leonardo Del Vecchio control about 17.4 per cent of votes. They claim that a long-term stake of 13 per cent held by Mediobanca, an investment bank supportive of Donnet, distorts priorities. Dividends have taken precedence over investment, they say, hampering performance.

Generali’s total shareholder returns have lagged behind Swiss peer Zurich and for a long time Germany’s Allianz too. Returns on equity mirror those movements.

But the reasoning behind Caltagirone’s growth plan is shaky. He wants Generali to gear up and spend €7bn on takeovers. That could destroy value rather than generate it.

Both sides have used manoeuvres typical of hedge funds to bolster voting power. Mediobanca has borrowed shares. Caltagirone has used derivatives. These wheezes create economic misalignment between combatants and ordinary shareholders.

A further distorting factor is the ambition of Mediobanca’s urbane boss Alberto Nagel to buy Generali’s private banking business. This smacks of the cosy dealmaking of the Agnellis and state holding company IRI in the postwar years.

Lex recommends a vote for the board’s slate of directors as the option that would do least harm. There is a rider: any sale of the Generali private bank should be via an open auction organised by a bank and a board committee entirely independent of Donnet and Mediobanca.

If Mediobanca ended up buying the unit, worth almost €4bn, in a sweetheart deal, minorities would have every right to feel manipulated.