March 25, 2023 Newsletter
The Italian Government’s top management appointments for the companies participated by the Ministry of Economy and Finances are relevant for Italy’s and Europe’s geopolitical standing in the years to come. ENEL, ENI, Leonardo, Poste Italiane and Terna are, respectively, players in oil, utility, defense, financial services/logistics, and, energy transmission system sectors. As background, Italy abolished the State-Owned Participation Ministry at the beginning of 90’s and privatized its holdings that span from banks to utilities to transport. In terms of scale and scope, the Italian public enterprise sector ranked high among OECD countries. This wave of privatization generated US$ 170 billion for the state coffers. This was part of the macroeconomic adjustment, general market deregulation, and promotion of private investment in the provision of public infrastructure to reduce the public debt to become a more financially stable member of the Euro. The need for cash was the key driver in the privatization and the ensuing process was too fast to be thoroughly strategic. Some public companies, however, like the ones undergoing leadership appointments, have rewarded shareholders very well. Terna shares, for example, from its 2004 IPO to the end of 2021, have provided a total return to shareholders of approximately +971%. Enel, the former domestic incumbent, is today the largest European utility, US$ 60 billion in market capitalization. Today, the government holds approximately 30% of the outstanding shares and still calls the shots. It will propose to the shareholders’ general assembly the Chairperson, the CEO and some board members. Typically, a small fraction of other shareholders attends this meeting, 1 to 2% of the outstanding shares, for a number of practical reasons including the fact that shares need to be “deposited” and hence are not tradable. Italy has no shortage of talents and all current CEOs have demonstrated to be value generators both for shareholders and stakeholders. Italy’s Prime Minister Giorgia Meloni has, naturally, the ambition to shine from this round of appointments including the possibility of nominating a female CEO to lead one of these giants. Market forces do work and have an influence. While gossip about who is going to be appointed to which position starts early in the calendar year, governments are obliged to appoint competent CEOs. Indeed, competence and strategic vision will be critical. The war in Ukraine makes these companies geo-politically relevant. In addition to the energy independence challenge, Italy’s international standing will also depend upon the strategic choices, alliances and, possibly, acquisitions of these companies. Collectively these Italy based corporations worth US$ 140 billion by market capitalization. While respectable, this amount is dwarfed by their respective US and Chinese counterparts. Oil producer ENI’s market cap, for example, is US$ 48 billion while US Exxon-Mobil is 10X or US$ 420 billion. The size and scale of European (and Italian) companies will attract increasing scrutiny as the tensions between democracies vs autocracies rise. Europe, despite its pacifist ambition and legacy, must grow to become, at last, a geo-political force. That’s why these new appointments are of extreme interest.
NEWEST Newsletter, March 25 2023