Activist investors pushing for change in corporate Italy are finding themselves increasingly at odds with the government rather than business bosses because of the state’s growing appetite for intervention.
Over the course of the pandemic, Italy’s ruling coalition has signalled that it is keen to partially reverse decades of privatisations by taking stakes in certain businesses. It has also made it a priority to limit foreign investment in what it deems strategic assets.
Lawyer Francesco Gatti, founding partner of Milan-based Gatti Pavesi Bianchi Ludovici, believes it is essential that the state protects strategic assets in a crisis but “there’s clearly a risk it occupies spaces in the economy without being accountable”.
In recent months, a number of foreign hedge funds and other investors have directly taken on the state to defend their investments against what they argue is unfair meddling by Rome.
Recent examples include the fight by shareholders against a government decision to give itself veto rules over the telecoms company Retelit. The decision was overturned by the Italian courts in September, and a month later Asterion, a Spanish private equity group, acquired a 24.1 per cent stake in the company.
Another ongoing battle involves a group of foreign investors that has lodged a complaint with the EU over the Italian government’s attempt to force infrastructure group Atlantia to relinquish control of its toll road business. Atlantia owned the company in charge of the Genoa bridge that collapsed two years ago, killing 43 people.
Investors like TCI’s Chris Hohn have said that such government action is illegal and will have a chilling effect on international investment. TCI has since increased its stake in Atlantia to above 10 per cent, in effect becoming its second-largest shareholder, and is engaged in a tug of war with Italian institutions over the toll road business, which it claims is worth at least €2.5bn more than the Italians’ valuation.
Gianluca Ferrari, founder and chief investment officer of Clearway Capital, who led the shareholder campaign to overturn the Italian government’s intervention in Retelit, said that activists in Europe were having to fight against state intervention.
“As some European governments increasingly overstep their bounds, going beyond simple regulation and oversight, and begin to meddle in business decisions, they will inevitably cross paths with shareholders,” he said. “In the specific case of Retelit, it took two years to overturn the government’s decision which directly resulted in an excellent outcome for the company and for its shareholders.”
Rome’s role in a national broadband project spearheaded by Telecom Italia, which would make it the group’s largest shareholder, has also attracted investor criticism, while some officials have warned that the project might be in conflict with EU competition rules and mean Italy reverting to monopoly provision.
In August, Telecom Italia delayed the €1.8bn sale of network assets to KKR at the government’s request. According to three people, Telecom Italia’s chief executive Luigi Gubitosi received a phone call from the treasury during a board meeting on August 5 meant to approve the sale, asking him to postpone it in order to firm up the national broadband network deal. The KKR sale was finally agreed at the end of that month.
“What is striking about the Italians right now, is the way they operate,” said one London-based investor.
“They call up chief executives of private companies, like Telecom [Italia], at the last minute dictating their requests, which is kind of shocking.”
Nino Tronchetti Provera, the founder and managing partner of Ambienta, agrees that it is a trend across Europe: “In France, they managed to turn yoghurt into a strategic asset. Just look at what happened with Danone.”
Over the past decade, foreign investors have invested in Italian infrastructure, banks, utilities and telecoms. According to Mr Tronchetti Provera, despite the political environment, foreign money will never turn away from Italy because there are good companies to invest in.
Mr Gatti believes that activists have, in fact, become an important aid to corporate governance, because they have ways to limit state intervention. “Forcing the government to be transparent and accountable is the best defence against dirigisme,” he said.