Cesare Geronzi has spent a lifetime roaming the Italian corporate landscape as a solution in search of a problem. His currency is power rather than strategic or operational expertise. His appointment a year ago as chairman of Generali, one of Europe’s top three insurers, should have alerted investors to potential trouble ahead. It has duly arrived: Generali’s board is riven by a dispute over strategy between Mr Geronzi and chief executive Giovanni Perissinotto.
Mr Geronzi seems to want to romanise the Trieste company by making it more pliable to the machinations of Italy’s corporate and political sistema. As arguably Italy’s most important financial institution, Generali deserves a better fate. The group’s board meets on Wednesday to try to resolve the dispute; shareholders should be cheering on the outspoken directors who reject Mr Geronzi’s vision.
For Generali, the clash is a distraction from two bigger challenges. Strategically, the group is hamstrung by Mediobanca, which owns a 15 per cent stake and in effect controls the board (Mr Geronzi is a former chairman of the investment bank). As it has lost its central role in corporate Italy, however, Mediobanca’s outsize stake in Generali is damaging both institutions. The Milan bank could regain some of its financial and strategic mojo by reducing its Generali stake – say, below 10 per cent.
Generali would then have more freedom to address its operational challenges, which include poor free cash flow. Generali’s cash flow yield will probably be only 5 per cent in 2011, compared to 8 to 9 per cent at its peers, according to Credit Suisse. So its dividend yield compares unfavourably – 4.5 per cent against 5.5 to 7.5 per cent. Generali shares have fallen 9 per cent since mid-February, yet still trade at a premium to competitors. With strategic and operational buzz in short supply, that looks unjustified.
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