January 15, 2015 / 1:48 PM / 4 years ago

Italy's law to reward loyal investors irks funds

MILAN (Reuters) - Italian companies are beginning to shed their reluctance to open their shareholder base to outsiders, coaxed by new legislation that strengthens the voting power of long-term investors.

Parliament passed the measure last year. It was aimed at encouraging Italian small and medium firms to expand their capital base amid a recession and credit crunch.

It lets companies give investors who hold stock for more than two years up to two votes at shareholder meetings for every one share they own. Similar multiple-vote schemes exist in France, Britain and Northern Europe.

The aim is to convince family-owned firms that make up the core of Italy Inc to list more shares on the stock market without necessarily losing control of a company they have in some cases owned for generations. This long-standing reticence has made Italian companies overly reliant on bank lending at a time when banks are tightening their taps.

So far, three companies are trying to make the change. Beverages group Campari, builder Astaldi and hearing aid firm Amplifon are all holding shareholder meetings this month in order to put the required change in their statutes to a vote.

As a way to jump-start the new system, the government is allowing companies that vote on the changes this month to approve the shift by a simple majority. From next month, a two-thirds majority will be required.

“The possibility of increasing the free float, dilute and raise funds for growth made us take advantage of this opportunity,” Amplifon Chief Executive Franco Moscetti said.

Moscetti said the company hadn’t decided whether Amplifon would increase the free float right away, but he said it was important to have the opportunity. Ampliter N.V., the holding company of Amplifon’s founding family, owns nearly 55 percent of the group.

There are risks, however.

Some investment funds say the measures could concentrate power into the hands of a small group of shareholders to the detriment of minority stockholders by giving core investors significantly higher voting powers or allowing them to reduce their stakes without relinquishing control.

That might prompt foreign investors to shy away from Italian stocks or at least reduce their exposure, fund managers said.

Sergio Carbonara, founder of Frontis Governance, a small firm that advises investment funds on how to vote at shareholder meetings, says the risk is that Italy reverts to the time when a small group of banks, big companies and rich families controlled large firms with small investments and through opaque corporate pyramids and shareholder pacts.

“The biggest risk is that this would give control to a narrow group of majority shareholders,” said Carbonara. “This would be a step backwards in Italian governance which has seen very positive developments in the last two years.”


Italian business has tried hard in the past few years to shake off its reputation as being under the sway of the so-called “salotto buono”. The expression, which literally means “fine drawing room”, refers to an elite clique of investors who controlled big companies, cooperated to protect their own interests and shielded companies from takeover.

Several of these shareholder pacts are in the process of being dissolved, most notably the one that controlled indebted phone group Telecom Italia.

When the so-called loyalty share scheme was introduced last year, some observers said it might convince Italian companies to keep their legal base in Italy. Fiat Chrysler Automobiles (FCA) last year moved its legal base to the Netherlands where the option to grant multiple voting rights to long-term investors was already in force.

The move tightened the founding Agnelli family’s grip on the carmaker. Though the family has a stake of around 30 percent, it has nearly 50 percent of voting rights, making a hostile takeover, or even a management change backed by minority shareholders, more difficult.

The controlling shareholders behind Campari, Amplifon and Astaldi all have more than a 50 percent stake, meaning the statute change is likely to be approved at all three upcoming shareholder meetings. The voting power of these controlling shareholders would then rise to up to around 70 percent, giving them a two-thirds majority at future meetings. They could also choose to reduce their stake without losing de-facto control.

Campari said the long-term commitment of its shareholders was “extremely beneficial” to the company and that rewarding loyal investors would be in its best interest.

Proxy firm Glass Lewis is nonetheless urging investors at all three companies to vote against the scheme, saying it would treat shareholders unequally. ISS, another proxy firm, is due to publish its recommendations on the three companies this week. Institutional investors usually follow the recommendation of proxy advisors.

“We are most worried about small to medium enterprises where the families will now be able to control shareholder meetings with fewer shares,” said Stefano Colombi, head of equity investments at asset manager Mediolanum Gestione Fondi.

Alessandro Penati, chairman at asset manager Quaestio Capital Management, said the scheme would further weaken minority shareholders. The risk is that Italy’s stock market could become “even more marginalized and irrelevant than it already is”.

Additional reporting by Paola Arosio and Massimo Gaia; editing by Alessandra Galloni and Janet McBride

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