Italian business leaders yesterday faced an embarrassing setback in their plans to create a giant new industrial conglomerate when share trading in the key holding company, Gemina, was suspended indefinitely following a judicial investigation into its accounting practices.
Gemina, which is controlled mainly by the Agnelli family and the powerful merchant bank Mediobanca, was due to be merged with the Montedison-Ferruzzi group in the next few months. Bigger than anything in Italy apart from Fiat, the company would produce everything from chemicals to newspapers.
But the deal looked in serious trouble after magistrates in Milan announced over the weekend that they were formally placing 10 senior Gemina executives under invest- igation. Among the apparent irregularities is an 800bn lire (pounds 300m) "hole" in the accounting figures for the past 18 months at Gemina's publishing arm, Rizzoli. The company posted a 262bn lire loss for 1994.
Gianni Agnelli, Fiat's chairman, told journalists: "Opening a formal inquiry does not mean much in itself. We'll have to see what it is all about."
Tax inspectors spent the weekend removing documents from Gemina offices, and yesterday moved on to the group's two firms of accountants, Arthur Andersen and Coopers and Lybrand.
The news came as a bombshell to the Italian business community and made suspension in share trading virtually inevitable. The Milan bourse regulator, Consob, waited one hour yesterday morning but then pulled Gemina out of the market indefinitely as shares opened nearly 10 per cent down on their closing price on Friday.
The company, whose other interests include banking, textiles and metals, has been in trouble ever since the merger with Ferruzzi was announced at the beginning of September. With domestic and international investors questioning the wisdom of fusing two loss-making groups at a time when giant conglomerates are going out of fashion, Gemina shares have dropped from 908 lire on 1 September to less than 700 lire. The timetable for the merger is now almost certain to be postponed.
That in turn would be a serious dent to the prestige of Mr Agnelli and his very Italian way of doing business. The Gemina-Montedison deal - like so many before it - was worked out behind closed doors among Mr Agnelli's closest friends, notably the 87-year-old honorary chairman of Mediobanca, Enrico Cuccia.
Yesterday Gemina's shareholders' association cried foul for the second time in two months, saying the high-level machinations went against their interests. They blamed the bourse for failing to suspend share trading several weeks ago.