Italian deal creates pounds 16bn giant



The twin giants of Italian finance and industry have joined forces in a stunning deal this weekend, to create the country's second-largest industrial conglomerate out of the ruins of two high-profile loss-making companies.

The typically audacious merger swung the spotlight back onto the deal- making powers of the two men who reign over Italian business: Gianni Agnelli, veteran chairman of the Fiat empire, and Enrico Cuccia, patriarch of the shadowy, but extraordinarily influential investment bank, Mediobanca.

On one side of the merger is Ferruzzi Finanziaria, the vast Italian chemical and agricultural holding company that nearly collapsed in a wave of corruption scandals two years ago and has been surviving on a financial life-support system provided by a consortium of prominent banks ever since. On the other is Gemina, a high-profile investment company part-owned by such big names as Fiat and the insurance concern Generali, which posted a loss of L262bn lire (about pounds 100m) last year.

Out of these seemingly unpromising base metals, Italy's two masterdealers have struck gold with a highly complex merger that will create a private industrial colossus with an annual turnover forecast at around L40trn (pounds 16bn).

The new conglomerate, which has already nicknamed "Super-Gemina" in the Italian press following the announcement of the deal late last Friday, will include an expanded version of Montedison, the country's biggest chemical concern, as well as interests in pharmaceuticals, electricity, textiles, construction, insurance, food and publishing.

In any other country the extraordinary web of asset swaps involved in such a deal would have been subject to endless scrutiny by government ministers, lawyers, accountants, merchant banks and anti-trust bodies.

Since it was Italy, though, the manoeuvre was largely down to two men whose business influence has no parallel in other major industrial countries. Hardly a significant deal is struck without the approval of Mediobanca.

Characteristically, Mr Agnelli and Mr Cuccia have wrought their deal to save Ferruzzi among friends, the so-called "salotto buono" or salon of Italian business.

Thus Fiat has propped up Montedison by "giving" it two of its chemicals- related concerns - the artificial fibres company Snia Fibre and its sister firm Caffaro. Moreover, both Fiat and Mediobanca will be represented in the new conglomerate with shareholdings of eight per cent each.

The deal has sparked a furious debate about the wisdom of creating conglomerates at a time when most leading multinationals are trying to scale down and concentrate on their core businesses. It also constitutes something of a humiliation for Italy's political class, which had nothing to do with it and - given the enormous personal power of Mr Cuccia and Mr Agnelli - is unlikely to do much intervening at this stage.