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Intesa-Generali speculation heats up again

by Marigia Mangano

The appointment is set for tomorrow at the meeting of the Generali Group's board of directors. This is the second meeting of the insurer's board in a week. According to some sources, the meeting will mainly deal with issues regarding routine business, given that it has been on the agenda for a while.

This doesn't rule out the fact that, over the course of the meeting, there may be statement on the fate of the 3% block of shares the insurer owns in Intesa Sanpaolo. In fact, last week the investments and strategic operations committee (swiftly followed by Generali's board of directors) agreed that it would make sense to unwind the security lending on Intesa Sanpaolo shares. Generali’s 3% stake in Intesa was a defensive move several weeks ago taken to block the bank from launching a possible stakebuilding that could lead to control of Generali.

Evidently, the insurer intends to maintain its presence in the bank in a different way, allowing it to consolidate its position yet, at the same time, more actively and directly manage the dossier.

From this perspective, the insurer is thought to have launched a study to evaluate the options on the table: it's possible that a complex packet of options could be created, which would make the entire operation much smoother.

In anticipation of the results of the current evaluations, Generali's shares on the market began selling rather well, with an end-of-the-day boost of 2.6% to €14.77; Intesa Sanpaolo stock rose by 0.5% to €2.14.

The press's indiscretions helped reignite the spotlight on Generali; according to the Financial Times, we will know within a couple of weeks whether or not Intesa will go ahead with their plans for Generali.

According to the British paper, Intesa Sanpaolo CEO Carlo Messina told investors at the road show that he wanted a “friendly merger,” and to devise an approach towards Generali and the company's principal shareholders.

Regardless of which, the general impression is that, by the end of February, “the industrial union” with Generali that Intesa Sanpaolo is currently studying could have a definite answer—in one way or another. Naturally, the Trieste-based insurer is trying to formulate a defensive strategy—and quick.

Generali is using this unforeseen ‘truce' phase to close their ranks even further. On the other hand, Intesa Sanpaolo's lunging attempt definitively showed that Generali is prey for the market—and, above all, that the current Mediobanca-led shareholding structure (which was able to guarantee their independence for years) no longer appears capable of deterring further incursions, Italian or foreign.

Basically, their new objective isn't to defend themselves from Intesa; rather, they're looking to create conditions that will guarantee their independence and integrity in the long run.
From here on, they will need to evaluate all of the possible options, in order to bolster the insurance group in the short-term.

According to the Financial Times, one potential first step that they've mulling over is intervening by speeding up savings, which are on the order of 4% of costs and €200 million for 2019's strategies. The goal would be to bring them around 6-7%.

More generally, the group would intend to expedite the implementation of the plan in 2019. This project calls for consolidation in the key areas, and disciplined growth in the relevant zones.

It's similarly true that increasing Generali's size could prove to be the best weapon for blocking further hostile operations. It's not just the Milan-based bank that's waiting on the doorstep, but also (generally speaking) the sector's big international names, from Zurich to Allianz and AXA.

Individual targets haven't been identified but, according to Generali's insiders, they could possibly aim for a mid-sized company to open new markets, like Royal Sun Alliance (RSA).

Therefore, it would certainly implement the plan, but also create a more attentive analysis of the market's opportunities (in terms of growth in acquisitions). This last option obviously wouldn't exclude consultation between management and the company's principal shareholders, including Mediobanca, Caltagirone, De Agostini, and Leonardo Del Vecchio. Moreover, in case Generali goes ‘shopping' abroad, it might need to ask for further capital boosts.