Generali/Caltagirone: blurred lines bring voting practices under scrutiny
Safest course for minorities is to assume low-cost derivatives may feature in the strategies of both factions
Buying votes is illegal and immoral in politics. In business, the lines are blurred. Investors have long been able to split voting rights from their economic interests. The practice of “empty voting” is back in the spotlight in the battle for control of Generali, Italy’s largest insurer.
Two warring groups are involved: an establishment faction and a rebel alliance. The fight has personal undertones. It will create sore losers, whoever wins. Minorities should inspect claims from both camps sceptically.
Chief executive Philippe Donnet leads the establishment faction. This is backed by the board and Generali’s largest shareholder Mediobanca. The investment bank, whose boss is the urbane Alberto Nagel, holds 12.8 per cent of Generali’s shares. It has borrowed further votes worth 4.4 per cent, boosting its voting power to 17.2 per cent.
Critics howl that this is fast practice. Dispassionately, Lex believes vocal investors are most convincing when they hold unleveraged long positions in cash equities. That aligns them with the minorities they hope to sway. Low-cost prime broking jiggery pokery does not.
The rebel alliance is not beyond reproach here. This faction is led by construction mogul Francesco Caltagirone. He wants ex-Goldman banker Claudio Costamagna and Generali lifer Luciano Cirinà to run the insurer. With the support of eyewear mogul Leonardo del Vecchio and the Fondazione Cassa di Risparmio di Torino, Caltagirone controls 17.4 per cent.
Filings last year showed that 1.7 per cent of Caltagirone’s stake involved a so-called “equity collar”. Typically, this involves an activist investor buying a put option to cap their downside to shares, paid for by selling a call option. The put represents cheap collateral they can borrow against.
Caltagirone would doubtless say this was just a prudent hedge. The safest course for minorities is to assume low-cost derivatives may feature in the strategies of both factions. They should instead focus on who will benefit most from different voting outcomes, starting with themselves. Lex will aim to answer that question in another note closer to the vote at the end of this month.