Italy's great Generali game enters fateful round

Reuters

10-03-2025

LONDON, March 10 (Reuters Breakingviews) - Assicurazioni Generali (GASI.MI), opens new tab has long occupied a special place at the heart of Italian finance. The nearly 200-year-old insurance group was at the heart of a web of companies controlled by Mediobanca (MDBI.MI), opens new tab, historically the country's most powerful investment bank. As the latter's grip has gradually loosened, rebel shareholders have laid siege to the 49-billion-euro Generali. The latest battle could make its governance even more complex.
For years Mediobanca called the shots at Generali, despite owning just 13% of the group. Recently its role has been as a backseat supporter of CEO Philippe Donnet and his strategy. Other shareholders are attempting to muscle in. Three years ago, construction magnate Francesco Gaetano Caltagirone presented a rival slate of board directors to the annual shareholder meeting. He won the support of Leonardo Del Vecchio, the founder of glasses maker EssilorLuxottica (ESLX.PA), opens new tab.
Generali's candidates prevailed, with the support of Mediobanca and the help of international investors. Nevertheless, the rebel shareholders are still important players, despite the death of Del Vecchio a few months later. Caltagirone and Delfin, the Del Vecchio family vehicle, now own 6.9% and 9.9% of Generali, respectively. Between them the pair also own almost 30% of Mediobanca.
In 2022 Caltagirone's candidates proposed, opens new tab slashing Generali's costs to boost earnings growth while expanding through dealmaking. Yet the stakes go far beyond a traditional activist campaign. The government keeps a close eye on Italy's biggest insurer, which is a large holder of sovereign debt. Its fate is also a benchmark for governance in Italy, where local powerbrokers have typically controlled critical financial institutions. Indeed, Caltagirone argues Mediobanca still exercises excessive influence over the insurer.
The battleground has shifted in three ways since 2022: Italy has passed a new corporate governance law; Mediobanca has become the target of a hostile $15 billion takeover from Banca Monte dei Paschi di Siena (BMPS.MI), opens new tab, the formerly bailed-out bank; and rival lender UniCredit (CRDI.MI), opens new tab has built a stake in Generali. All three have the potential to alter the power balance.
Start with the new corporate governance law introduced by Italian Prime Minister Giorgia Meloni. It changes how companies allocate board seats when shareholders present rival slates of candidates at the annual meeting. In the past, the list receiving a majority of votes from investors would take their seats on the board. Now, a company that presents a slate and wins a majority must share the board seats with rivals which make up the minority, in proportion to the votes each received. The legislative change could give large shareholders like Caltagirone more seats on Generali's board than he received in 2022 - assuming he once again presents a list of candidates.
Next, consider the battle for control of Mediobanca. MPS has offered to swap 2.3 of its own shares for each Mediobanca share. Caltagirone and Delfin respectively own 8% and 9% of the Siena-based bank. If MPS prevails, the pair will together own more than 20% of the enlarged lender, according to Breakingviews calculations. That could give them more influence over Mediobanca's 13% stake in Generali - in addition to their existing shareholdings in the insurer. While the two investors are independent of each other and may not always vote the same way, their influence could tip the balance of power in any future battle for control of Generali. However, the outcome of the Mediobanca battle will come too late to have any impact on Generali's AGM this year.
The final wild card is UniCredit. The bank run by CEO Andrea Orcel has recently amassed a 5.2% stake in Generali. Its motivations are unclear: it may see an opportunity to make a financial return, or it may be angling to do business with the insurer. The stake may also be a bargaining chip to help Orcel secure support for UniCredit's acquisition of $16 billion Italian lender Banco BPM (BAMI.MI), opens new tab.
Fearful of a boardroom stalemate, Generali has departed from its usual practice by deciding not to present a list of directors to the annual meeting. It thereby avoids a proportional allocation of board seats in the event of a split vote but leaves the field open for rival shareholders to present their candidates. Mediobanca is likely to nominate Donnet for another term as CEO. Caltagirone may propose a list of six candidates, Corriere della Sera reported, opens new tab, but has yet to confirm his plans. However, the absence of an official board slate could make institutional investors like BlackRock (BLK.N), opens new tab and Norway's sovereign wealth fund wary of backing one horse. The effect may be to weaken Mediobanca's grip, leading to a more fragmented board.
Investors seeking to make sense of the situation face multiple unknowns. For one, it is not a given that MPS will keep Mediobanca's stake in Generali stake if it succeeds in taking control of the Milan-based bank. MPS CEO Luigi Lovaglio is probably less interested in holding a minority stake in the insurance group than in creating a bigger lender which can square up to Intesa Sanpaolo (ISP.MI), opens new tab and UniCredit. He could sell the Generali stake or distribute it to the bank's shareholders. Intesa and UniCredit may also harbour ambitions to control Generali.
The boardroom machinations may seem like a distraction. Generali has performed well under Donnet, despite the noise. In the past three years it has returned over 100% to shareholders, including dividends, comfortably exceeding European rivals Axa (AXAF.PA), opens new tab, Zurich Insurance (ZURN.S), opens new tab and Allianz (ALVG.DE), opens new tab. And there is not much evidence of a governance discount weighing on its stock. The company trades 11 times expected earnings for the next 12 months: a modest discount to Allianz, but above French peer Axa, as per LSEG data.
Shareholders have some differences over strategy: Caltagirone's representatives did not back Generali's recent deal to merge its asset management unit with French rival Natixis, for example. However, it is far from clear that a new board and chief executive would take the insurer in a dramatically different direction.
Yet how Generali emerges from the next phase will matter. If MPS prevails the insurer could emerge finally shorn of Mediobanca's influence. Italian capitalism has come a long way in cleaning itself up from the days when power brokers exerted their control over the country's main financial institutions through opaque backroom deals. But if Generali's governance becomes more complex, and more beholden to powerful local players, foreign investors may see it as another reason to avoid Italy.
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