Reuters – Funds Face Fight to Win FonSai Battle

A private equity bid for Fondiaria-SAI spearheaded by banker Matteo Arpe needs to show it can find the money and expertise to revive the troubled Italian insurer if it is to capitalise on a setback to a rival offer, writes Reuters. Italian private equity fund Sator – led by Arpe, who turned around Rome-based bank Capitalia before it merged with UniCredit – and Veneto-based Palladio Finanziaria have teamed up for a takeover bid, writes Reuters.

Reuters – A private equity bid for Fondiaria-SAI spearheaded by seasoned banker Matteo Arpe needs to show it can find the money and expertise to revive the troubled Italian insurer if it is to capitalise on a setback to a rival offer.

Fondiaria, Italy’s No.2 insurer behind Assicurazioni Generali, is in dire financial straits after years of decline under the Ligresti family which controls it, and urgently needs a capital injection to stay afloat.

Italian private equity fund Sator – led by Arpe, who turned around Rome-based bank Capitalia before it merged with UniCredit – and Veneto-based Palladio Finanziaria have teamed up for a takeover bid.

They got a lift on Friday when two Ligresti family members turned down a complex rival offer by Italy’s No.3 listed insurer Unipol, citing doubts about the plan and Unipol’s state of health.

Yet the offer from the funds, which already own 8 percent of Fondiaria, is also raising eyebrows as it lacks an industrial partner, gives few details about funding and may further delay the rescue of Fondiaria after months of intense sparring.

“Take a look at the funds’ weak asset profile: Sator and Palladio don’t have any equity and they are going around asking everyone for funding,” one senior banker close to the matter said.

The funds claim they do not need an industrial partner as Fondiaria simply needs good management. But critics object.

“In Europe no one has ever given an insurance company to private equity, I can’t imagine what a regulator would think of that,” an industry source close to the process said.

Outside of continental Europe, however, there have been examples of deals by financial buyers, with British insurance acquisition specialist Resolution buying life insurer Friends Provident and most of Axa’s UK operations.

HEALTH WARNING

The bitter battle for control of Fondiaria, which at times has had all the hallmarks of a soap opera, has been dragging on for nearly six months, leaving the insurer with a depleted capital base as the euro zone crisis deepens.

The boards of Premafin, the Ligrestis’ listed holding that owns 36 percent of Fondiaria, and of Fondiaria are meeting respectively at 1600 GMT on Sunday and on Monday morning to decide which offer to back.

One source close to the situation told Reuters on Sunday the Ligrestis may now be inclined to back the funds.

“The family is evaluating the new offer,” the source said.

The bid by Sator and Palladio has disrupted the plans of Unipol, which is backed by Fondiaria creditors Mediobanca and UniCredit.

Under a rejigged offer presented on Friday, Sator and Palladio envisage a cash injection of at least 800 million euros into Fondiaria. Of this, 400 million euros will be paid by the two funds, with the rest coming from a cash call to Fondiaria shareholders, including debt-ridden Premafin.

The plan, much smaller than the cash calls envisaged by Unipol, would give the Ligrestis a far bigger stake in the larger group and is liked by many analysts as it is simpler than the Unipol rescue deal.

But some shareholders object to the Ligrestis retaining a strong position after presiding over Fondiaria’s decline. In the last five years the insurer’s market value has collapsed to 476 million euros from 5 billion euros.

While Mediobanca has already lined up two banking syndicates to underwrite the Unipol cash calls, Sator and Palladio have not, saying they can only do so once Fondiaria backs their offer. The unlisted funds have no duty to disclose accounts.

Mediobanca, which is exposed for 1.1 billion euros to Fondiaria, and UniCredit, a Fondiaria shareholder that holds Premafin debt, will play a key role in determining the success of the Sator-Palladio offer.

UniCredit Chief Executive Federico Ghizzoni said on Thursday his bank, Italy’s largest, is ready to call in collateral and take on Fondiaria shares.

Such a move would cut the Ligrestis out and give the banks a free hand in pushing through their preferred merger option.

“We cannot wait for ever. The final deadline is June 11,” Ghizzoni told reporters on the sidelines of a banking conference, adding that all creditor banks were in agreement.

But calling in collateral could lengthen the rescue plan and trigger a possible legal appeal by the Ligrestis, potentially prompting insurance regulator ISVAP to step in to protect Fondiaria’s 8 million clients and placing a massive question mark over debt repayment.