Montedison S.p.A.

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Montedison S.p.A.

Piazzetta Maurilio Bossi, 3
20121 Milan
Italy
(02) 62701
Fax: (02) 62704610
Web site: http://www.montedison.it/indexgb.htm

Public Company
Incorporated: 1966 as Montecatini Edison S.p.A.
Employees: 27,632
Sales: L23.68 trillion (US$13.3 billion) (1997)
Stock Exchanges: Rome Florence Milan Amsterdam
Brussels Geneva
SICs: 1311 Crude Petroleum & Natural Gas; 1541 General Contractors-Industrial Buildings & Warehouses; 1542 General Contractors-Non-Residential Buildings; 1629 Heavy Construction, Not Elsewhere Classified; 2035 Pickled Fruits & Vegetables, Salad Dressings, Vegetable Sauces & Seasonings; 2046 Wet Corn Milling; 2048 Prepared Feeds for Livestock; 2062 Cane Sugar Refining; 2075 Soybean Oil Mills; 2076 Vegetable Oil Mills, Except Corn, Cottonseed & Soybean; 2099 Food Preparations, Not Elsewhere Classified; 2819 Industrial Inorganic Chemicals, Not Elsewhere Classified; 2821 Plastics Materials, Nonvulcanizable Elastomers & Synthetic Resins; 2834 Pharmaceutical Preparations; 4619 Pipelines, Not Elsewhere Classified; 4911 Electric Services; 6719 Offices of Holding Companies, Not Elsewhere Classified; 8711 Engineering Services

Montedison S.p.A. is one of the largest industrial holding companies in Italy. The group includes five principal activities: agribusiness, through a 50.4 percent stake in France-based Eridania Béghin-Say S.A., generating 79.1 percent of net revenues; energy, through a 61.3 percent interest in Edison S.p.A., generating 11.2 percent; fluorine-based chemicals and peroxides, through wholly owned Ausimont S.p.A., generating 3.8 percent; engineering and heavy construction, through wholly owned Tecnimont S.p.A., generating 3.5 percent; and pharmaceutical intermediates, through wholly owned Antibioticos S.p.A., generating 2.4 percent. With 194 plants in 21 countries, nearly two-thirds of net revenues originate outside Italy. Montedison is affiliated with Compagnia di Participazioni Assicurative ed Industriali S.p.A. (Compart), which holds a controlling 32 percent stake in Montedison. Compart is the name adopted by Ferruzzi Finanziaria S.p.A. (Ferfin) in the summer of 1996. The combined Ferfin-Montedison empire nearly collapsed in the early 1990s under the weight of massive debt brought on by overly acquisitive management.

Montedison was formed on July 7, 1966, through the merger of Montecatini S.p.A. and Edison S.p.A. Edison had been an electric power utility company that had moved into chemicals, while Montecatini had been a chemical company buying and building power plants. The two had had intertwined histories for years, at times with the same man on both boards coordinating their growth, at other times with nothing in common but rivalry.

Early Histories

Edison had been formed as a power utility in 1884 in Milan. Like nearly all the early electrical companies, it grew quickly and steadily. The long strikes by workers in 1913 and the two world wars barely affected its fortunes. In the 1930s, while the rest of the world was in a depression, Edison began to diversify widely and, in the 1950s, began its acquisition of petrochemical companies. By 1960, Edison was Italy’s second largest chemical concern.

Montecatini was formed in 1888 as a pyrite mining business in Tuscany. It was run by the Donegani family, in particular by Guido Donegani, who was made director in 1910. Born in Livorno in 1877, he had studied industrial engineering, and was utterly a man of his time. He served in Parliament in 1921, was vice-president of the Banca Commerciale Italiana at the peak of his business career, and soon became the president of his profession’s fascist organization.

Within ten years of taking over as Montecatini’s director, Donegani had begun to build the small mining company into a much larger enterprise. While he had some domestic backing from the Banca Commerciale and the Credito Italiano, it was mainly through the heavy funding from four Parisian financial and industrial backers that he was able to involve Montecatini in the production of phosphates, fertilizers, and sulfuric acid. The development of all of Italy’s chemical industry at the time depended not only on French financing and sales agreements, but on the colonial ventures in phosphate mining in French Tunisia. Montecatini had one of the main mining contracts there, and built much of its later strength on this early cooperation with the French. At the same time, the Banca Commerciale was investing heavily in public utilities, especially the electric ones such as Edison. One of the bank’s managers, Guiseppe Toeplitz, worked closely with the Donegani brothers to arrange Montecatini’s monopolization of the fertilizer and sulphates production in Italy. With the Banca Commerciale and Donegani directing the growth of both companies, there was no real competition between them, but the ground was obviously prepared for it to begin whenever the leadership of the companies would be different.

After World War I a second phase of growth began for Montecatini. It branched out into aluminum, purchasing its own sulphur phosphate factories, and gradually took over the country’s explosives industry. It built the first synthetic ammonia plant in Italy, and then added marble works. Even so, it was a small company by international standards, its 1928 capital being a little over the equivalent of £1 million.

World War II was more drastic, and reduced the company’s installations by a third. Reconstruction led to some managerial changes: in 1945, Guido Donegani had been arrested as a collaborator but, like so many, was freed almost immediately, for “negative evidence.” His release caused Montecatini’s workers to strike in protest. Though he remained free, he disappeared and, in April 1947, died of heart disease.

By 1948, Montecatini had managed to regain its former size, with 57,000 workers, 110,000 shareholders, and a working capital of 18 million lire. It was mining or producing sulphur, bauxite, marble and granite, lead, zinc, and aluminum. The chemical production had expanded from fertilizers to insecticides, pharmaceuticals, and man-made fibers. The company’s own electrical production was 1.3 billion kilowatts, from its eight hydroelectrical and one thermoelectrical plants. New ventures included rope making, packaging, and investment in research. It built Europe’s first petrochemical plant, at Ferrara. In one of its research facilities, Professor Giulio Natta created the process for manufacturing isotactic polypropylene, of major importance in the production of thermoplastics. (For this work, he was awarded the Nobel Prize in chemistry in 1963.)

1966 Merger Formed Montedison

By this time, the company had overextended itself. Royal Dutch/Shell became a large investor in Montecatini’s petrochemical business, while preparation also had to be made for what seemed to be the inevitable nationalization. The 1966 merger with Edison was partly a result of the difficulties brought to Montecatini by overextending and to Edison by nationalization. Before the merger, Edison had lost its electrical generating interest to nationalization, and was having trouble getting paid for it. Edison’s president, Giorgio Valerio, began negotiating the merger of the two companies, which would compensate for Edison’s great losses, in such complete secrecy that even Montecatini’s president, Carlo Faina, knew nothing about it. When he was ultimately presented with the finalized merger terms, it was something of a fait accompli, though he did try to turn the tables and suggest that Montecatini take over Edison instead. The battle was loud but ineffectual, and the result, Montedison, was a huge conglomerate centered on chemicals and electricity.

Two years later, the Ente Nazionale Idrocarburi (ENI) acquired an interest in Montedison which, combined with that of Istituto per la Riconstruzione Industríale (IRI), gave the state 18.4 percent of the company. Small shareholders were outraged, claiming the move was “surreptitious nationalization.” In the riotous annual meeting of 1969, they stood up, shouted, and threw coins and copies of the annual report at the chair. Despite the noise, the state retained its shares.

Disastrous 1970s

The 1970s brought a disastrous period when the company, under Eugenio Cefis, fell to undeclared bankruptcy. While chairman of Montedison, Cefis was called the most powerful man in Italy, but he had studied at the Modena military academy and seemed to have a greater understanding of politics than of industry. As chairman, he operated from within a personal and highly political clique. At the same time, the government thought that the company could come in handy for a massive job creation scheme in the south of the country, and set up businesses through which it had no hope of making a profit. While the government supported the company’s debts, Cefis overextended into numerous other industries, and continued to play political games. In 1974 there was a scandal over his receipt of daily reports from military counterintelligence on politicians and industrialists, among them the prime minister. By then, Montedison’s losses were averaging 100,000 million lire per year, but Cefis did not resign for another three years. He was followed by another man not up to the job, a former minister of agriculture, Giuseppi Medici, who resigned in 1980.

The hero of Montedison’s survival of this crisis was Mario Schimberni, who became chairman in April 1980. Originally a lecturer in industrial technology, he moved into industry and worked his way up the managerial ranks of Montefibre and Montedison. As soon as he took over the latter, he fired seven senior managers and nearly 100 middle managers, in some cases replacing them with younger people having a more internationalist view of business. When ENI sold its shares in 1981, they were bought by Gemina, putting more of Italy’s traditionally powerful businessmen among the shareholders, and giving Schimberni a group of people with whom he could work to manipulate the shareholders’decisions about the company. In a major rationalization program, activities in subsidiaries, particularly Montefibre, were cut back. Montedison’s 200 or more companies were then divided into groups based on what they produced, and the workforce was cut from 149,000 to 69,000.

Ferfin Purchased Controlling Stake by 1987

Montedison was once again profitable in 1985 and by 1986 Montedison posted sales of US$10 billion and earnings of US$260 million. By that time, however, Schimberni’s ambition had gotten the best of him, as he had begun an acquisition drive in 1984 that would eventually lead to his downfall. To raise money for these purchases, Schimberni issued the equivalent of one billion new Montedison shares from 1984 to 1986. This diluted the position of the company’s existing shareholders, including the powerful Italian merchant bank Mediobanca. The bank’s chairman, Enrico Cuccia, encouraged Raul Gardini, the head of Italy’s huge agro-industrial group, Ferruzzi Finanziaria (Ferfin), to build up a significant stake in Montedison. By March 1987 Ferfin had spent US$ 1.7 billion to gain a 40 percent interest in Montedison. In late 1987 Cuccia and Gardini joined forces to force Schimberni out as Montedison’s chairman. Gardini named himself the new chairman, and Ferfin was now firmly in control of Montedison, creating one of the largest agro-industrial groups in the world.

Unfortunately, the strength gained through the group’s size was seriously countered by its financial position that was seriously hampered by immense debt—almost US$9 billion in January 1988. Gardini had made numerous other acquisitions besides that of Montedison since taking over as head of the Ferruzzi family-run Ferfin in 1979 following the death of his father-in-law. Ferfin purchased a controlling stake in France-based sugar and paper conglomerate Béghin-Say S.A., which had been founded in 1821, and acquired CPC International Inc.’s European operations, becoming the largest starch producer in Europe. These purchases were at least synergistic and would eventually become part of Montedison. More troubling were such noncore additions as concrete and cement maker Calcestruzzi (later known as Calcemento), insurance group Fondiaria, a national newspaper, and a television station.

Gardini’s downfall was nearly as fast as Schimberni’s. In a move designed to cut costs for the debt-laden FerfinMontedison group, Gardini in early 1989 formed a chemicals joint venture with EN I called Enimont. But Gardini and managers of the state-owned Enimont clashed over how to run Enimont, and Gardini failed in a 1990 attempt to buy out the government’s stake in the venture. In November 1990 Gardini accepted an offer from ENI to buy out Montedison’s stake in Enimont for L2.8 trillion (US$2.53 billion). He also at the same time resigned from his positions at both Ferfin and Montedison, apparently because of family squabbling. At Montedison, Giuseppe Garofano succeeded Gardini.

Near Collapse in the Early 1990s

Gardini left quite a mess behind him. Debt for Montedison alone stood at L16.5 trillion (US$11.2 billion) in 1992. The company was also losing huge sums of money in the recessionary early 1990s: L1.68 trillion (US$1.14 billion) in 1992 and LI.34 billion (US$801.6 million) in 1993. Some restructuring of operations and divestments occurred in the early 1990s, but not to significant effect. Montedison had combined its paper operations in Europe with those of James River Corporation into a joint venture called Jamont N.V. in late 1989. Montedison, now viewing paper as a noncore area, sold its 50 percent interest in the venture to James River for US$827 million in late 1991. In 1992 Béghin-Say was merged with Eridania Zuccherifici Nazionali S.p.A. to form Eridania Béghin-Say S.A. (EBS). Eridania’s history dated back to the late 19th century; it had been purchased by Ferfin in 1978 and was the beet sugar market leader in Italy in the early 1990s. By 1993 Montedison held a 60 percent interest in EBS, whose operations included sugar and derivatives, starch and derivatives, vegetable oils for industry, animal feeds, and consumer food products. In terms of revenues, EBS was by far Montedison’s largest business. During 1993, Montedison sold its pharmaceuticals businesses to the Swedish Kabi-Procordia Group for about L1.9 trillion (US$1.12 billion).

Also in 1993, Montedison and Ferfin came extremely close to declaring bankruptcy, with only the intervention of Italian banks preventing this. As part of one of the largest out-of-court financial restructurings ever, the banks pushed for new leadership at the two companies, and Guido Rossi was named chairman of both while Enrico Bondi became managing director. The banks also agreed to a recovery plan in late 1993 involving rights issues to raise money, delayed payments of loan interest, and divestment of noncore assets. Montedison would focus on three main sectors: agribusiness (Eridania Béghin-Say), chemicals (Montecatini), and energy (Edison).

While this plan was being negotiated, Montedison and Ferfin were figuring prominently in a wide-ranging scandal involving fraud, kickbacks, and political payoffs in Italy. Gardini’s activities at Ferfin and Montedison faced intense scrutiny, and the former Montedison chairman committed suicide in July 1993 as investigators closed in. One of the principal accusations was that ENI had been persuaded through bribery to pay an inflated amount in the buyout of Montedison’s stake in Enimont. In connection with this and other illegalities, Sergio Cusani, a former financial consultant to Ferfin and Montedison, was found guilty of corruption and false accounting and sentenced to eight years in prison in April 1994. He was also ordered to repay L167.8 billion to Montedison. Also in April 1994 Montedison sued Price Waterhouse Italy for breaching accounting standards as the company’s auditor from 1983 through 1992. The suit was settled in late 1996 when Price Waterhouse agreed to pay L31 billion (US$20 million) to Montedison. The effects of the scandal were still being felt in the late 1990s as the U.S. Securities and Exchange Commission filed a civil suit against Montedison in November 1996 accusing the company of falsifying its financial records from 1988 to 1993 to conceal hundreds of millions of dollars in bribes. Even Montedison’s once-savior, Schimberni, was caught in the web; he was put under house arrest in December 1993, charged with deception and illicit distribution of dividends during the period of his chairmanship of the company.

Montedison slowly struggled to recover from its financial woes and scandalous past in the mid-1990s. The company was back in the black by 1995. Rossi, having succeeded in keeping Montedison afloat, stepped down as chairman in February 1995 and was replaced by Luigi Lucchini, who was also chairman of a privately held Italian steelmaker. Bondi remained managing director. Also in 1995 a long-planned joint venture with Royal Dutch/Shell finally made its debut. The 50-50 venture, called Montell N.V., joined the two companies’ polypropylene and polyethylene operations. Two years later, however, Montedison sold its stake in Montell to Shell for L3.59 trillion.

This and other, smaller divestments cut Montedison’s total debt to L3.2 trillion by the end of 1997. By that time, Montedison was 32 percent owned by Compagnia di Participazioni Assicurative ed Industriali S.p.A. (Compart), the new name adopted by Ferfin in the summer of 1996 in order to sever its ties with its scandalous Ferruzzi past. As the end of the millennium approached, Montedison was now primarily in the area of agribusiness, through its 50.4 percent holding in Eridania Béghin-Say. The company’s Montecatini chemicals business had been reduced, with the disposition of Montell, to Ausimont, a maker of fluorine-based chemicals and peroxides, and Antibioticos, which made chemicals used in the manufacture of pharmaceuticals. Through Edison, 61.3 percent owned by Montedison, the company continued its participation in the energy sector, specifically the production, transport, and marketing of electricity and natural gas. Another significant Montedison company was Tecnimont, an engineering firm and constructor of industrial, environmental, and infrastructure facilities worldwide. It was in these industries that Montedison was staking its future, having twice in the late 20th century neared bankruptcy.

Principal Subsidiaries

Eridania Béghin-Say S.A. (France; 50.41%); Ausimont S.p.A.; Antibióticos S.p.A.; Syremont S.p.A.; Edison S.p.A. (61.33%); Tecnimont S.p.A.; Iniziativa Edilizia S.p.A.