Exor S.p.A. Investment Conglomorate (EXORF)

[Wildbilly]

The Agnellis Buy Their Way Into Europe '92

A little History

"I really won't be satisfied until I have a Nestle." That's how the patrician Italian industrialist Giovanni Agnelli used to joke with his close friends about his family's acquisitions in food and beverages.

It's hardly a joke anymore. While the Agnelli name has been almost synonymous with car giant Fiat, the first family of Italian capitalism is aggressively turning its attention to investments far removed from greasy auto assembly lines. In late November, an Agnelli investment arm bid $330 million for a controlling stake in France's Exor group, which in turn controls the $2.4 billion Perrier bottled water empire. That's only the latest buy in an Agnelli shopping spree that has ranged from yogurt to insurance to hotel management.

Going into the more unified Europe of 1992, the Agnellis see the need to hedge their bets on cars -- and on Italy itself. The family's flagship Fiat -- the Agnellis directly and indirectly control 41% of the group's capital -- faces unprecedented competition in its core car and truck lines. While Fiat's costs are among the lowest in Europe, the Turin-based group's lineup of new products is skimpy, just when hungry competitors such as General Motors Corp. and Volkswagen are rolling out hot models.

Not to mention the Japanese. Under an agreement cut last July, the European Community will gradually allow more Japanese cars into protected markets such as Italy's. Fiat's once-commanding market share in Italy has dropped to under 48% from over 60% only three years ago. In the same period, the company has gone from record profits of $2.6 billion to an estimated $500 million. Next year, says Agnelli, will be "very difficult." There's renewed speculation of a merger with France's Peugeot as a possible way out of Fiat's problems.

GALLIC GRAB. In the effort to redefine themselves, the Agnellis are moving fast to diversify geographically, too. For decades, the Agnellis have thrived mainly within Italy's borders. Now, the quintessential Italian business empire is reducing its exposure in Italy and gearing up for the rest of Europe. This move could foreshadow tough times for Italy as it limps along with crippling government debt, widespread political malaise, and anemic capital markets. "We have to invest abroad," says Gabriele Galateri, a former banker who guided IFIL, one of the family's companies, as it invested $1.3 billion over the past three years. "The potential in other European countries is unfortunately higher than it is in Italy."

In expanding their reach, the Agnellis are not relying on Fiat, whose sales of $49 billion are still heavily dependent on the domestic Italian market. Instead, the family is using a collection of investment vehicles bearing such names as IFI, IFINT, and IFIL. While these companies have some operations in Italy, they are the ones being used to gobble up properties mostly in Europe but also in Asia and the U. S.

The goal, advisers suggest, is to become a food and beverage titan in Europe on a par with Switzerland's giant Nestle. It's still open to question whether the Agnellis can manage such a disparate business on a continent-wide scale, or whether the notoriously low-margin food and beverage business will yield rich profits.

But for now, the Agnellis are looking like some of Europe's savviest investors. They've already proven their knack for making shrewd investments inside Italy. In fact, although the value of Fiat's noncore holdings are carried on company books at a measly $2 billion, they now have a market value of more than $9 billion, according to Francesco Paolo Mattioli, Fiat's top finance man.

Aside from buying properties outright, the Italians are breaking ground in strategic alliances in France and Germany. The Agnellis are teaming up with Germany's Metallgesellshaft on jointly owned Paris-based trading company Safic Alcan, which last year notched up $600 million in business, mostly rubber trading in the Far East. IFINT's control of Exor, with its 35% holding in Perrier as well as a portfolio of prime Paris real estate, gives the Agnellis added clout in the French corporate world. A 20% stake in Sardinia-based Meridiana, southern Europe's largest private airline, is IFINT's sole investment inItaly.

The Exor investment is an example of the Agnellis' growing interest both in food and in France. Through IFIL the Agnellis are now the key shareholder in France's No. 1 food and beverage giant, BSN, which last year chalked up $9.6 billion in sales. And BSN and the Agnellis have spent over $1 billion buying Italian food companies ranging from Sangemini, the country's largest mineral water concern, to Galbani, the leading salami and cheese group. Such joint investments now give the Turin clan control over the country's largest assemblage of food companies, with $3 billion in annual sales.

In many cases, the Agnellis are trading their commanding position in the Italian market for a piece of the action outside the country. French publisher Hachette, for instance, swapped shareholdings with Milan's Rizzoli Corriere della Sera publishing group, which is indirectly controlled by Agnelli companies. And Fiat traded its Italian telecom unit, Telettra, for 6% of French electronics giant Alcatel Alsthom and two of its subsidiaries. "The Agnellis," says Lazard Freres & Co. Chairman Michel David-Weill, "are first and foremost remarkably good partners for foreigners who want to do things in Italy."

IN THE SPOTLIGHT. The Agnellis' changing strategic focus may also be accompanied by a change at the top. According to a clause in the statutes of Giovanni Agnelli & Co., which controls the major Agnelli holdings, managing partners must retire at age 75. In Giovanni's case, that means 1996. And, company insiders say, the silver-haired magnate may abdicate even before then.

The diversification drive is putting the spotlight on the mild-mannered Umberto Agnelli. Over the decades, he has played No. 2 to his older brother, Giovanni. Right now, 57-year-old Umberto is the architect of much of the family's overseas, nonauto investments. In the drawing rooms of Agnelli courtiers in Turin and Milan, the talk these days is of his increasing responsibilities and powers. Says one Fiat employee close to both brothers: "Umberto will be king before too long."

Umberto's increasing power is shifting the emphasis at the group. He has more experience in Asia and Eastern Europe than his brother, who passes almost as much time in New York -- where he has a Matisse-filled Park Avenue penthouse -- as he does in Turin. The elder Agnelli recently told an interviewer: "All Umberto's links with Japan, his knowledge of Japan, and his responsibility for relations with Eastern Europe give him a different training to my own. My life has been Europe with America. I'm more Atlantic."

SCOUTING ASIA. Signaling the shift, the company is making its first moves in Asia, though from a much more modest starting point than in Europe. A few days after Umberto returned from Tokyo in November, Richecourt, a new Hong Kong-based venture capital group jointly owned by the Agnellis' IFIL, the Rockefellers, and France's Worms & Co., announced its first deal: a chain of clubs for business executives. And in the next few weeks, IFINT, the holding company that oversees the major Agnelli investment in the U. S., will be opening an observation post in Singapore. Says Gianluigi Gabetti, managing director of IFINT: "We'll pay a lot of attention to the Far East."

Even within the Fiat group, diversification is providing a lift. Such activities as robots, financial services, and chemicals will account for over 27% of sales this year. Says Dagmar Bottenbruch, auto specialist at Financiere Credit Suisse-First Boston in Milan: "If it weren't for diversified sales, Fiat would be losing money this year."

Even as the Agnellis acquire properties outside of Italy, however, they are selling off pieces of Fiat to help meet the enormous cash needs in the auto and truck divisions. Company insiders say that spinning off all or part of the retailing and insurance units is likely over the next year or so. Says Umberto: "In the next five years, our core business will need money. And yes, we will slim down." Flagship Fiat may be in for rough times, but the broadening of the Agnelli empire will help cushion the shock waves of Europe '92.

THE NEW AGNELLI EMPIRE

http://www.businessweek.com/stories/1991-12-15/the-agnellis-buy-their-way-into-europe-92