Thursday, October 18, 2007

Benetton seeks to diversify

The Benettons and Goldman Sachs were meeting in New York on Thursday and Friday to decide how best to vet and choose investors who want to put up billions of euros to join the Italian family in its latest venture.

The Benettons, famous for their clothing company, are on the move again after months of delays and disappointments over their investments in the Italian motorway network and in Telecom Italia.

Goldman's private equity wing has already put in €1bn ($1.4bn), about a quarter of the amount being sought for investments in global infrastructure assets from toll roads to airports and railway stations.

It is the most dramatic change in the Benettons' empire since the four siblings from north-east Italy founded their clothing group in the 1960s.

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The family has also been joined by Mediobanca, the Italian investment bank, which has put in €300m. They want another €2.7bn.

Gilberto Benetton, one of the siblings, said this week: "We are aiming to sell up to 49 per cent [in the venture] and we are looking for three partners, possibly from Asia, the Middle East and eastern Europe who will bring business and not just financial resources."
The Benettons are worth more than €9bn, half of which is in their global clothing business and half is in Italian infrastructure.

They are also present in Telecom Italia, a bad investment which started in 2001 and has cost them €1bn in writedowns as the value of telecoms assets has shrunk.
The Benettons are staying in the controlling shareholder group as it changes hands from Pirelli, the tyre company, and its partners to a consortium including Telefónica, the Spanish telecoms company. Regulatory delays continue to hold up the transfer of control and T Italia has been in limbo for months.

The family's other interests run from Atlantia, the company which operates the majority of Italy's motorway toll roads, to airports in Rome, Florence and Turin and a share in 13 of the country's main railway stations. They also control Autogrill, the roads and airports caterer.
The first effort to make the portfolio more international fell apart last year. Atlantia, then called Autostrade, saw its merger plans with Abertis of Spain scuppered by the Italian government. Rome, which is being investigated by the European Commission over the affair, announced a wide-ranging review of the econ­o­m­ics of toll road concessions.

While the review was running, it made Atlantia's future profitability impossible to assess, and the merger hard to conclude.

The threat of losing the concession has recently been lifted, with Atlantia reaching an agreement with the government which could be passed by parliament next year.
But it is probably too late to revive the Abertis deal. The Spanish strategy has moved on, and so has that of the Benettons.

For the first time the Benettons want to dilute their holdings substantially to allow in others. The infrastructure side of the business, named Sintonia, is broadly doubling its capital base from €4bn to €8bn, and being supplemented by €2bn borrowed from the Royal Bank of Scotland.
People close to the family say they were jolted by the bad publicity arising from the Atlantia dispute with the government. Antonio Di Pietro, the infrastructure minister, made much of allegations that Atlantia had been taking toll money but failing to invest it in the network as promised.

The company admits it is hun­dreds of million of euros behind in its investments, but blames regulatory and planning delays. The finger-pointing and bad publicity is going to continue for a long time.

Of 3,800km of motorway under Atlantia's control, only 800km has more than two lanes on each side. While the rest is being upgraded slowly in coming decades, the Benettons hard­ly want to be perceived as foot-dragging profiteers rath­er than path-breaking purveyors of fashionable clothing.

One person close to the family said: "We want to separate the joy of buying clothes from the pain of paying for tolls."

Outside investors would also help to secure the future of the Benettons' fortune by bringing in hard-nosed and long-term financial partners.

This is linked to generational change; the siblings are not getting any younger. Luciano Benetton, who is 72, has already handed over control of the clothing company to his son Alessandro. Gilberto Benetton, who has been in charge of the investments, is 66.

So what is the pitch for new investors? The deal with the government has cleared the air over Atlantia, which accounts for about 75 per cent of the Benettons' infrastructure investments.
Rome's airports have also recently seen a power struggle resolved. The Benettons and partners bought out the share held by Macquarie, the Australian bank.

But although passenger traffic is set to treble over 20 years, there is uncertainty over Alitalia, the ailing airline, and airport concessions in general.

That uncertainty also afflicts Turin and Florence airports, the family's other existing investments.

Part of the attraction of the scheme is the investment opportunities outside Italy.
As Gilberto Benetton implied, Sintonia's partners will be expected to open doors around the world.

The selection of new investors will probably continue until the middle of next year.
After that, people close to the company say, if Abertis and Atlantia want to revive their merger, the Spaniards can be absorbed into the new financial structure.