Montedison-Gemina merger collapses

ANDREW GUMBEL

Rome

Italy's most ambitious merger plan in years, the creation of a giant industrial conglomerate through the fusion of the loss-making Montedison- Ferruzzi group with the holding company, Gemina, has collapsed following the launch of a judicial investigation into Gemina's accounting practices.

In a severe blow to the prestige of Italian business leaders involved in the deal, including Gianni Agnelli, chairman of Fiat, Gemina announced late on Monday night that it was postponing the merger indefinitely because market conditions were not right.

At the same time, Montedison's financial arm, Ferfin, announced it was seeking more than L1,000bn (pounds 351.4m) in new capital - a signal that it was already looking for other solutions to its debt problems.

The decision to create Italy's second-largest industrial conglomerate, producing everything from chemicals to encyclopedias, caused a sensation when it was announced in September because it had been negotiated in secret and concentrated considerable power in the hands of a few players - among them Mr Agnelli and Enrico Cuccia, the 87-year-old honorary chairman of Mediobanca, the merchant bank.

The deal was never popular with smaller shareholders, who considered they had been used as pawns in a high-level power game, and raised eyebrows among international investors who questioned the wisdom of creating a loss-making behemoth when large conglomerates are going out of fashion.

The severest blow came two weeks ago, when Milan magistrates announced they were placing 10 senior Gemina executives under investigation for irregularities, including an L800bn hole in the accounting figures for the past 18 months. The investigation is continuing.

Gemina's share price, which had stood at L908 at the time of the merger announcement, has dropped in the past six weeks to about L600 - creating serious arithmetical problems in the nuts and bolts of the merger. A temporary postponement had already been announced a week ago.

COMPANY RESULTS

Turnover pounds Pre-tax pounds EPS Dividend

Boxmore International (I) 33.7m (23.1m) 5.48m (3.75m) 13.2p (10.9p) 1.62p (1.375p)

Freeport (F) 1.86m (-) 0.1m (0.07m) 0.7p (27p) nil (-)

Magnolia (I) 10.6m (8.41m) -1.34m (-0.31m) -30.38p (-5.39p) nil (nil)

McKechnie (F) 533m (420m) 45.3m (35.3m) 33.8p (27.1p) 11p (9.75p)

Scottish Metro (F) 18.6m (16.3m) 8.52m (11.3m) 5.91p (8.82p) 2.5p (2p)

Silk Industries (I) 6.44m (6.27m) 0.97m (0.87m) 5.6p (4.8p) 2.0p (nil)

Wolseley (F) 3.78bn (3.25bn) 245m (202m) 29.72p (25.39p) 9.8p (8.36p)

Yorklyde (I) 11.3m (9.22m) 2.05m (1.70m) 13.2p (11.4p) 2.65p (2.4p)

(F) - Final (I) - Interim (N) - Nine months

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