TheChek News Flow

Seven-month fight over Italy’s largest insurer has raised fears over lasting recriminations

Months of acrimony and division over the future of Generali will culminate this week in a shareholder vote in Trieste, the Italian port city that gave the country’s largest insurer its nickname.

At stake is not just the fate of Generali, the almost 200-year old group with 75,000 employees and 67mn customers, but the credibility of Italian corporate governance after a fight that has pitted a pair of the country’s richest tycoons against two of its best-known financial institutions.

Investors must choose between a slate of directors led by the insurer’s embattled chief executive Philippe Donnet, who is backed by Mediobanca, the investment bank that has long been a powerbroker in Italy and is Generali’s largest investor, and a rival list that would install Luciano Cirinà as the next CEO.

A key Donnet lieutenant before breaking ranks last month, Cirinà has been proposed by construction billionaire Francesco Gaetano Caltagirone, a large Generali shareholder and longstanding board member until he quit in January. Caltagirone’s effort is backed by Leonardo Del Vecchio, another large shareholder who amassed his $30bn fortune in the eyewear industry, and whose board representative also resigned at the start of the year.

“This is the first time we see a clash between the company’s own slate of board candidates and its shareholders, rather than [a group of] shareholders battling each other as was the case, for example, in the fight for control of Telecom Italia between Elliot and Vivendi,” said Bruno Cova, a partner at law firm Willkie Farr & Gallagher and an Italian expert on corporate governance.

Beneath the mudslinging that has increasingly dominated the countdown to the vote, shareholders face a simple question: which of the duelling camps can deliver a brighter future for Generali, which is known as the Lion of Trieste.

In the view of Caltagirone and Del Vecchio, victory for Cirinà will curb the influence of Mediobanca, open the path to transformative acquisitions and accelerate earnings growth. In contrast, Donnet’s supporters point to the group’s record operating profits of €5.9bn last year and the perils of relying on M&A.

The choice of Donnet as CEO should be a “no-brainer”, said Lorenzo Pellicioli, the chief executive of media group De Agostini, who sat alongside Caltagirone on Generali’s board for 15 years, six of which were while Donnet has been at the helm. Pellicioli is also standing for re-election on Generali’s slate of directors.

With voting already under way ahead of the annual general meeting on Friday, institutional investors and the billionaire Benetton family, which has a 4 per cent stake in the insurer, are regarded as important swing voters.

The factions backing Donnet and Cirinà are roughly balanced, with each controlling about a fifth of the company’s voting rights. A third, shorter list of directors has been proposed by a group of institutional investors though it is not expected to garner much support.

Under Generali’s rules of association, most board directors will be drawn from the list that receives the most votes. A smaller number of directors will then be awarded to the second and third lists if their share of the vote meets a certain threshold.

Generali’s international investors could yet prove decisive. Influential proxy firms ISS and Glass Lewis have recommended shareholders stick with Donnet. Last week, Norway’s oil fund Norges, which holds a 1 per cent stake, and institutions including Canada’s CPP Investments, said they had voted for Donnet and the rest of the directors proposed by Generali.

Cirinà and Claudio Costamagna, a former Goldman Sachs banker who would become chair if Generali’s billionaire shareholders prevail, last month unveiled their own vision for the insurer, dubbed “Awakening the Lion”, at the Four Seasons hotel in Milan.

The two pledged to increase profits more quickly, cut costs and be bolder in striking deals. Andrew Ritchie, an analyst at Autonomous, said the plan was “impressive”, but like others said the projected savings were optimistic. A spokesperson for the Caltagirone camp said they were more than feasible.

But as the vote draws near, the bitterness of the past few months has raised fears that Generali and a newly constituted board will struggle to put the battle behind it.

The sides have taken aim at the other’s efforts to increase their stakes in Generali, with Costamagna and Del Vecchio criticising Mediobanca’s move to borrow 4 per cent of the insurer’s shares in a bid to give it more clout.

In an interview with the FT, Costamagna cast doubt on the legitimacy of a Mediobanca-backed board if the borrowed shares prove key to the outcome. In such a scenario, Caltagirone’s camp has said it may resort to legal action.

Despite its support for Generali’s director list, proxy adviser ISS cautioned that Mediobanca’s “questionable practice of borrowing shares . . . brings back memories of high-profile ‘empty voting’ cases from the 2000s,” in which a shareholder borrows stock to bolster its voting power without incurring any real economic risk.

Mediobanca has rejected the critique, describing its use of the borrowed shares as “fully legitimate” and designed to protect its $4bn investment in Generali.

Caltagirone, meanwhile, has around half of his near-10 per cent stake in Generali in pledged shares, whereby an investor borrows to buy stock and uses the same shares as collateral for the loan.

A spokesperson for Caltagirone defended the use of pledged shares, saying it “does not affect” his ownership of the stock.

Italy’s financial regulator Consob has also been drawn into the fray.

According to documents seen by the Financial Times, Generali’s audit committee reported a series of share trades, including a €14.76mn purchase executed on behalf of Caltagirone on December 14 after he had been included on a so-called insider list relating to Generali’s new strategy, which was unveiled on December 15th.

The purchase was part of a series that Caltagirone had mandated in September and were designed to increase his stake in Generali, according to people familiar with the matter.

The European Market Abuse Regulation prohibits the buying or selling of stock by individuals included on insider lists. Consob declined to comment on any of the trades reported by the insurer, but said it had been “closely following all matters relating to Generali.”

A spokesperson for Caltagirone declined to comment on the December 14 trade, but said “all the purchases by Caltagirone group fully respected all applicable rules and regulations.” Generali declined to comment on the trades it reported to the regulator.

The tensions between the camps escalated just over a week ago when Generali filed an “urgent complaint” with the regulator over what it called “incorrect and defamatory statements” made by Cirinà and Caltagirone in interviews discussing the insurer’s culture and Mediobanca’s influence.

Generali said it resolved to “launch criminal and civil legal proceedings” regarding the matter. A spokesperson for Cirinà and Caltagirone said they “cannot comment on the criminal and civil legal proceedings”.

Once the result of the vote is known, focus will quickly shift to the potentially fraught task of making the new board a functioning one following months of discord.

Given the size of the Generali stakes held by both sides, it is very likely that they will each be represented on the board following the vote.

Generali said in a statement that the new board will “take on its responsibilities to deliver on its strategic plan, working in the interest of all stakeholders, not any particular shareholder.”

However, analysts are sceptical of a quick return to business as usual. “There is a risk that the board could be more dysfunctional going forward than it has been,” said Autonomous’s Ritchie.

German carmaker focuses on reliability, rather than thrills in switch to battery power

The two identical BMW saloons driven slowly on to a stage in Munich last week were met with confusion from the assembled crowd. Until an executive at the launch event pointed to them individually, it was unclear which car was electric, and which carried a traditional petrol engine.

That is very much by design. Unlike domestic rival Mercedes, which chose a bespoke chassis for the battery-powered version of its flagship S-Class, German carmaker BMW is bucking the industry trend by merely offering different innards — electric, hybrid, or combustion engine — for one of its most popular models, in the hope that elite clients hardly notice the electric transition.

“Customers tend to prefer established concepts,” said chief executive Oliver Zipse. While many wealthy BMW owners “want to drive electric”, he added, “their willingness to accept compromises is very low”.

Zipse stands out among German auto executives for his reluctance to name a date for the phase out of the combustion engine, and for a cautious approach to the rollout of electric models. Unlike Mercedes, which has pledged to be all-electric by 2030 “where market conditions allow”, executives at BMW believe combustion engine models will still make up half of all sales by the end of the decade, ever stricter EU emissions rules notwithstanding.

“There is no regulator who has officially passed a law that in eight years' time, meaning in 2030, you’re not allowed to sell other [combustion engine cars],” Zipse said. “There are announcements, there’s political will,” he added, but “we are a scientifically-led company — we want to understand before we decide.”

While it waits to see how the electric market will develop, and whether sufficient charging infrastructure will be put in place to make emissions-free cars attractive to average consumers, BMW will produce electric, hybrid and combustion engine cars on the same assembly lines, by the same staff. The strategy, Zipse said, would ensure not a single job worldwide was lost during the transition.

Yet leading institutional investors in Germany say BMW’s profit margins are weighed down by its indecision over electric, and are concerned that multibillion-dollar investments in chassis and power architectures for battery-powered cars lie ahead of the company.

The new 7 Series is Zipse’s attempt to prove that an electric-first strategy is not a prerequisite to making a mark in the battery era. While an emissions-free version of the car is almost €29,000 more expensive than a diesel one, at €136,000, it has not been built to offer major power-saving aerodynamic advantages, nor has excess bonnet weight — unnecessary in the absence of an engine — been drastically trimmed.

Zipse, a former head of the carmaker’s Mini plant in Oxford, admits that such design choices come with trade-offs. But BMW is betting that 45 years after the luxury model’s debut, the executives and world leaders who tend to buy the car will want the same driving experience from the latest incarnation of the 7 Series, rather than an alien, if exciting, electric one.

“We don’t see customers in the luxury sedan segment willing to make a compromise between driving electric and the comfort of rear seating, or headroom, or space,” he said of the vehicle.

“The saying that there is a disadvantage if you don’t use a specific [electric] architecture is simply not true.”

BMW’s reluctance to experiment comes after the group posted a net profit of €12.5bn in 2021, a 150 per cent increase on 2019, and a 106-year record. “If you look at simple unit sales growth, it has done better than all competitors for the last two years, except Tesla,” said Jürgen Pieper, an auto analyst at Metzler who believes that BMW remains undervalued.

But he added that the 7 Series, which features a 31-inch cinema screen so that passengers can watch movies or video conference as they are chauffeured between meetings, may not be the car that will attract Tesla drivers, who will not see a “spectacular new product”. The BMW approach, Pieper said, “is not stupid . . . but I think the alternative is better”.

For Zipse, it is BMW’s reliability, rather than thrills, that will make the electric 7 Series a success. He hit out at “competitors who do not fulfil the promise for quality,” which he said was “shortsighted”.

While he did not mention Tesla by name, customers receiving the first models that rolled off the US company’s German plant last month took to social media to complain about gaps in the bodywork, the lack of which is a point of pride for German manufacturers like BMW.

Yet BMW, like its luxury rivals, is offering customers the choice of taking delivery of cars without all of the features promised, due to persistent bottlenecks in semiconductor supply. While the 7 Series will not be available until November, BMW sales chief Pieter Nota said he did not expect chip shortages to ease significantly until next year.

The rollout of BMW’s other electric vehicles, the iX and i4, has also been held up by supply chain problems, with demand outstripping the company’s ability to produce. But neither early customers’ enthusiasm, nor the acceleration of competitors has led Zipse to rethink his electric plans, under which cars based on an entirely new battery-first design will not roll off assembly lines until the middle of the decade.

“Wouldn’t it be a pity,” he said, “if every car manufacturer would do exactly the same thing?”

EU weighs cap on price paid for Russian oil as way to hit Kremlin revenues

Germany and other countries reluctant to follow US with immediate embargo on crude imports from Moscow

EU member states are looking at whether to impose a ceiling on what they would pay for Russian oil as a way to hit Kremlin revenues, as they shy away from agreeing an immediate blockade on Moscow’s crude exports.

An oil price cap is one of a number of proposals being discussed as EU ambassadors prepare for talks in coming days about more sanctions on Moscow — the sixth such package since Vladimir Putin ordered the invasion of Ukraine two months ago.

“[The talks are about] finding the best way to deny [Putin] the revenue that he needs,” said one person familiar with the conversations.

Another alternative would involve imposing an EU tariff on Russian oil, analysts say, forcing Russia to cut prices to stay competitive.

EU member states are divided over how aggressively to move against Russian energy, which is at the heart of the country’s economy. Russia provides more than a quarter of EU crude oil imports and member states have paid Moscow more than €13bn for oil since the war with Ukraine started, according to CREA, a research organisation.

Germany and other countries have ruled out an overnight ban on Russian oil imports because it would harm their own industry, while EU officials fear a ban could drive up oil prices and even increase the Kremlin’s revenues.

Berlin is also wary of alternatives including the notion of a price cap on Russian oil. Nevertheless discussions about new EU curbs on Russian energy have gathered pace, including on the sidelines of meetings of the IMF and World Bank last week.

The US halted energy imports from Russia last month but has refrained from pushing the EU to do the same, recognising many countries’ dependence on Russian energy and the risk of damage to the world economy.

But Washington could help to enforce any EU cap on Russian oil prices by making it more difficult for Moscow to sell to others, possibly by threatening sanctions against any purchasers contemplating buying Russian oil at higher prices.

“In the absence of this threat, we might expect European tariffs or price caps on Russian oil to cause that oil to be diverted to buyers in China, India, and elsewhere who are willing to pay a higher price than Europe,” Krishna Guha, analyst at Evercore ISI, wrote in a note at the weekend. “The threat of secondary sanctions may limit the speed and extent of this adjustment process.”

Some EU member states including Germany have traditionally been hostile towards US extraterritorial sanctions, however, and might not be willing to countenance such an escalation.

The biggest question is still over whether the EU will agree on a price cap or tariffs in the first place. Italy is among the member states to have spoken in favour of seeking to cap on the price of Russian energy.

But German officials say the government is sceptical. “Trying to set a price would be difficult, and also in breach of contract,” said one senior German official.

Another official in Berlin said Russian oil was imported into Germany by private companies and so “any price cap implies that someone will have to pay the price difference — so it operates as a subsidy . . . The price cap idea is not being taken seriously here”.

Berlin is instead focusing its efforts on a gradual phaseout of Russian oil. The economy ministry has said import volumes will be halved by the summer and that by the end of the year, Germany will be “virtually independent” of Russian oil.

Since the invasion of Ukraine began, Russian seaborne oil exports have recovered and are currently 100,000 barrels a day higher than the 2021 average, according to Vortexa, an oil cargo tracking company. More volumes are heading to Asia, primarily India and China.

In the case of an EU oil embargo Natasha Kaneva, head of global commodities research at JPMorgan, said Russia would only be able to reroute a further 1mn b/d to other markets, out of the roughly 4mn b/d of oil and product exports that would be affected. Approximately 0.7mn b/d of oil that previously flowed to Europe has already been rerouted.

Shareholders seek action from various food multinationals on nutrition and obesity after victory at Unilever

Investors managing $3tn in assets are pushing food multinationals Nestlé, Danone, Kraft Heinz and Kellogg to set out new disclosures and targets on health after a successful campaign for changes at Unilever.

The investors including Legal & General Investment Management and BMO Global Asset Management have written to the boards of the companies ahead of their annual meetings, in a demonstration of shareholder concern about nutrition and obesity.

In a push also co-ordinated by responsible investment non-profit ShareAction, a smaller group of the same investors last month secured fresh commitments from Unilever on health.

Unilever said it would publish nutrition scores for its food portfolio against external metrics — not just its own measures — and would set new targets, after the investors tabled a resolution ahead of its AGM.

The fresh push for major food brands to improve their health credentials comes as governments globally tighten regulations to help curb obesity.

Ignacio Vazquez, senior manager at ShareAction, said: “Regulatory trends, as well as consumer support for healthier products, mean that food businesses must consider health as an increasingly material risk factor.

“Investors need companies to use standardised health metrics to determine their exposure to regulatory risk and their position relative to competitors.”

ShareAction, which previously targeted UK supermarket Tesco on obesity, has asked for meetings with the chair of each of the foodmakers and said the public move represented an “escalation” of private discussions.

Vazquez added: “If you go into the manufacturers’ and supermarkets’ reports you will find information about what they are doing on climate change, plastics, biodiversity and so on but nutrition and health hasn’t been addressed properly.

“What’s changed in the last couple of years is that Covid and the link with excess weight has put a spotlight on unhealthy foods and governments across the world [are] really ramping up regulations.”

The letters contrasted the companies’ own assessments of their products with findings using external metrics by the independent Access to Nutrition Initiative (ATNI).

For example, Nestlé said that in 2019, 80.5 per cent of its mainstream food and drink sales were from products meeting its Nestlé Nutritional Foundation criteria. But the ATNI put the proportion of sales of healthy products at 43 per cent.

The Financial Times last year revealed that Nestlé had assessed its portfolio internally against third-party metrics and found that more than 60 per cent of its mainstream food and drinks did not meet a “recognised definition of health”.

Nestlé said: “As part of our ongoing company-wide work to update our sustainable nutrition and health approach, we are . . . looking at the best way to benchmark ourselves against external and recognised standards.”

Danone says that 90 per cent of its sales are of healthy products, but the ATNI puts the figure at 65 per cent, while Kraft Heinz’s own figure of 76 per cent contrasts with the ATNI’s 39 per cent. Kellogg does not report health data but the ATNI says only 27 per cent of its sales are of healthy products.

Polling by Censuswide for ShareAction in the UK, US, Germany, France, Australia and Mexico found public support for greater action. Among respondents, 81 per cent said they supported government regulation to make healthy foods cheaper and more widely available.

Danone said it was “committed to providing ever clearer, ever more complete information on our products’ ingredients and nutritional value”, including through the use of Europe’s Nutri-Score system.

Kellogg said: “We believe in the need to refocus attention toward a holistic approach to wellbeing, considering not only the nutrients that individual foods provide, but also how the food makes people feel and the impact the food has on society and the planet.”