The prospect of foreign takeovers of debt-burdened Italian companies trigger backlash

September 24, 2013 5:41 pm

Sales of Italian groups trigger backlash

By Guy Dinmore in Rome

The prospect of foreign takeovers of debt-burdened Italian companies, includingTelecom Italia, Alitalia and units ofFinmeccanica, could be seen as a boost for prime minister Enrico Letta as he tries to attract foreign investment on Wall Street this week. Instead, back in Rome the usual storm is brewing, as politicians and trade unions raise an outcry over what they see as a threat to jobs and national control over strategic industries that have blocked similar takeover attempts in the past.“In these days our country continues to lose valuable assets to foreign companies while we struggle to invest in ourselves,” railed Renato Brunetta, economics spokesman for the centre-right People of Liberty party (PDL) of former prime minister Silvio Berlusconi.

“If we go on like this, we will be left with just the waste of what was and still is a great industrial system,” said Mr Brunetta, demanding that Mr Letta address parliament on his return from the US, where he is promoting his Destination Italy plan.

Nonetheless, the protectionist tide appears to be turning. After years of political interference and weighed down by Italy’s longest postwar recession, the government is starting to acknowledge the reality that foreign bailouts can no longer be avoided.

In 2008, Mr Berlusconi in effect blocked a takeover of then state-owned Alitalia, making continued Italian control of its flag carrier a cornerstone of his ultimately successful election campaign.

But on Monday, transport minister Maurizio Lupi, of Mr Berlusconi’s Forza Italia party, said Italy would not oppose Air France-KLM raising its stake in Alitalia to 50 per cent from the 25 per cent it took when the airline was rescued from bankruptcy in 2008.

The focus now shifts to Alitalia’s board meeting on Thursday, when the carrier is expected to report another steep loss in the first half of the year. The company will discuss a capital increase of as much as €300m through which Air France-KLM could increase its stake.

The airline’s new management, led by Gabriele Del Torchio who sold Italian motorbike maker Ducati to Germany’s Audi, has said Alitalia must have a capital injection to implement a turnround. But with many of the Italian shareholders facing their own financial difficulties, few are expected to have the funds to stump up themselves, say people familiar with the matter.

Riccardo Barbieri, economist with Mizuho International, says the fates of Telecom Italia and Alitalia reflect the decline of Italy following years of interference by politicians in league with “predator” shareholders who sucked out resources and built up debt, starting with the botched privatisation of Telecom Italia in the late 1990s. “We need to keep politicians out of these companies to make them successful,” he commented.

In these days our country continues to lose valuable assets to foreign companies while we struggle to invest in ourselves

– Renato Brunetta, PDL economics spokesman

The government has signalled it will not impede the takeovers of Telecom Italia and Alitalia. But there are still efforts – under pressure from influential trade unions – to keep Finmeccanica’s unwanted subsidiaries under Italian control, against the wishes of its management, by selling controlling stakes to the Cassa Depositi e Prestiti (CDP), a Treasury-controlled fund that manages postal savings deposits.

The CDP is also in line to be used as a convenient dumping ground for state-owned properties that will be quasi-privatised to help the cash-strapped government balance its accounts.

Protectionist views continue to be heard, such as those of Gianni Alemanno, former rightwing mayor of Rome, who attacked the planned takeover of Telecom Italia by Spain’s Telefónica as a “huge defeat for Italy’s industrial system”.

Mr Letta, heading a fragile left-right grand coalition, also faces opposition within his own Democratic party. Stefano Fassina, a leftist deputy finance minister, is leading opposition to Finmeccanica’s plans to sell its Ansaldo Breda turbines unit to South Korea’s Doosan, and its lossmaking Ansalo Breda trains unit to Hitachi of Japan.

As Enrico Sassoon, a leading official of the American Chamber of Commerce, noted at a conference in Rome on Tuesday, political opposition to foreign takeovers over the years has come from left and right. Successive governments have failed to create the conditions needed to attract foreign investment, including reform of the cumbersome judiciary and public administration and making labour markets more flexible.