Da The Wall Street Journal del 05/10/2006
Originale su http://online.wsj.com/article/SB116000117306983015

Tronchetti Provera's Power Sags

As New Challenges Are Mounting

Marco Tronchetti Provera's weakened grip on Telecom Italia may be slipping. Even after quitting as chairman of the Italian telecoms operator last month, he kept first place in the shareholder register. But now even that may be under threat. Italy is swirling with rumors of moves by co-investors that could curb his power at two key links in his chain of control: Pirelli & C. or Olimpia.

Having lost billions of euros for co-investors and mishandled a fight with the government, it isn't surprising that Mr. Tronchetti Provera's power is under threat. But given the way things are moving, he may not even be able to profit from his erstwhile control.

One idea doing the rounds is that other big shareholders at Pirelli might force a capital increase. These other investors -- including Mediobanca, the Benetton family, Assicurazioni Generali and Banca Intesa -- have 26%, compared with the 25% held by Camfin, the Tronchetti Provera company higher up in the chain. Pirelli, though highly indebted, doesn't strictly need a rights issue. But if these co-investors took part and Camfin didn't, Mr. Tronchetti Provera would be diluted.

Another idea is that new investors could come in at Olimpia, the holding company that sits between Pirelli and TI.

In the latest development, Vincent Bolloré, the French investor who is a big shareholder in Mediobanca, said the Milanese investment bank might discuss Olimpia. He didn't spell out what he meant. But there must be a possibility that Pirelli's stake in Olimpia, currently 80%, might end up being diluted. Yet another rumor is that Pirelli might be bought out of Olimpia completely.

All this occurs at a time when TI itself has been buffeted by the discovery of an alleged espionage ring operating within its ranks.

Meanwhile, Mr. Tronchetti Provera's prestige has taken a knock following his tit-for-tat squabble with Romano Prodi, Italy's prime minister. In the latest move, the Pirelli boss said Mr. Prodi knew about the plan to potentially sell TIM, TI's mobile subsidiary -- seemingly a direct contradiction to what Mr. Prodi himself said.

Camfin's share price has slid nearly a quarter since the whole affair blew up, despite the fact that TI's is virtually unchanged. The market seems to be saying that Mr. Tronchetti Provera's negotiating position in any strategic moves at Olimpia or Pirelli isn't terribly strong.


It's the discount, stupid.

Investors have already seen the private-equity funds floated by KKR and Apollo earlier in the year fall below their issue prices. Both now trade at a discount to their stock-market debuts. A growing aversion to taking immediate losses explains why investors torpedoed Doughty Hanson's plan to raise a similar €1 billion ($1.27 billion) fund.

Doughty came up with some cunning wheezes to deal with the discount issue. It would defer 40% of the offer price for a year to minimize the so-called "cash drag" caused by holding substantial uninvested funds. And it would pay the fund's issue expenses -- which would otherwise be lopped straight off the net asset value -- in return for an option over the equity.

The snag is that these gimmicks didn't really get to the heart of the problem. Investors wanted the money to be put to work quickly, so they could earn a return.

Doughty could have learned from the IPO of Partners Group, a multimanager private-equity fund that floated recently. It arranged to invest a chunk of funds in leveraged debt products from day one, so it could immediately pay a dividend. But even then, its shares are only a fraction above the offer price.

The lesson for private-equity firms looking to raise listed funds is clear. You need a really good angle -- such as a geographical or sectoral speciality -- that investors want access to. And you need to solve the discount problem.


Volkswagen's tactics in the MAN-Scania battle are an enigma. Just two weeks ago, the auto group turned down a €9.6billion offer that MAN, the German industrial group, made for Scania, the Swedish truck-maker in which VW has a 34% stake. Now VW itself has bought a 15% stake in MAN.

It may sound complicated. But what VW wants is pretty simple. It wants MAN and Scania to come together and form a European truck-making champion. And it wants a chunky stake in the new group, so that it can inject its subscale Brazilian trucks business into the mix.

Having 34% of Scania wasn't enough to force an independent Scania to buy its truck business. But MAN's cash-and-shares bid wasn't particularly appealing either. It took no account of the extra voting powers of the "A" shares VW holds in Scania, and would have diluted VW's voting stake to as little as a 3% of the new company.

But in rejecting MAN's offer, VW may have created a new problem. The failure of MAN's offer put the German group in a weak position, and raised the possibility MAN would fall to a hostile bid from a third party. That, too, would have denied VW the chance to solve its truck problem.

By buying a 15% stake in Scania, VW has now made some kind of MAN-Scania deal more likely. It has also stamped out the possibility of Scania launching a hostile counter bid, or of a third-party bidding for MAN. VW is now in a good position to bang Scania's and MAN's heads together.

The question is what shape a deal will take. VW would presumably favor a friendly merger that recognizes its supercharged "A" shares. But that would be unpopular with Scania's "B" shareholders, whose consent is needed because they hold half of the group's capital. The same problem would bedevil any revised MAN offer that promised holders of A-shares a better deal.

VW has ensured that its interests -- and the fate of its trucks business -- can't be ignored if a deal does happen. A tie-up of MAN and Scania is a rich prize. But it may yet require further sacrifices from the enigmatic car maker.

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