Italy: The Supercolossus

The largest merger in Italian history is about to create the country’s biggest business (replacing Fiat). The merger is between Montecatini, the huge chemical-minerals complex, and the Edison Group, a private power company that switched to heavy industry in order to survive when Italy nationalized power in 1962. The resulting giant, which Italians are already calling “the supercolossus,” would have united sales of about $1.5 billion, would control 70% of Italy’s chemical production and much of its pyrite, potassium, bauxite and glass output. At the news that the government had tentatively approved the merger and that it would shortly be submitted for stockholder approval, Edison’s stock jumped 66 points and Montecatini’s eight points on the Milan exchange.

It was the second auspicious event of the week for Montecatini. Earlier, autocratic, meticulous President Carlo Faina, 71, who is descended from the Bonapartes, returned from a trip to Moscow with more to show than Ancestor Napoleon had ever brought away. Montecatini, announced Faina, will build six chemical plants for the Russians under a $110 million contract, will also exchange raw materials (including Russian oil) and finished products with them, and has worked out a technical-assistance agreement that will net more millions. The agreement is the largest that any Italian company has ever made with the Soviets.

More Remarkable. The sudden merger and sales activity is the more remarkable because only two years ago Montecatini was in deep trouble. The company, whose products range from aluminum to antibiotics, expanded too rapidly during Il Boom, found itself strapped by ambitious commitments, soaring wages and increased building costs when Il Sboom—the recession—hit Italy. Unable to obtain a needed $72 million loan in a shrinking capital market, Faina skipped a dividend for only the second time in 18 years, looked around for other relief. He found it in a partnership under which the Royal Dutch/Shell Group put up half the cost of Montecatini petrochemical plants abuilding at Ferrara and Brindisi.

Saved by Shell, Faina moved to strengthen Montecatini. He acquired Adriatic Electric—along with Edison, one of Italy’s five big pre-nationalization electric companies—and with it a $190 million expropriation payment still due from the government. Meanwhile, other nations gradually recognized Montecatini patents on such processes as Moplen, a light, easily molded polypropylene for which Chemist Giulio Natta won the 1963 Nobel Prize. Montecatini now holds 1,800 patents, fattens its income by licensing them in 30 countries. Sales are up 31% to $633.6 million this year, although rising costs continue to hold down profits.

Free from Competition. The merger, the immensity of which will have billowing effects on every financial empire in Italy, will enable Faina to cut costs. It will also bolster power-shorn Edison; under President Giorgio Valerio, 61, Edison has used its expropriation cash to move into electronics and heavy machinery, but most strongly into chemicals, where it has become Montecatini’s principal rival. The merged company would no longer have to worry about that kind of competition, nor, because of Italy’s easy antitrust laws, about facing monopoly charges.

“There’s no question about it,” says Valerio, a shrewd engineer who will probably become chief executive of the supercolossus, “we had to think big or give up. We could no longer shape our industries along national lines. We had to become a company that could compete effectively in European terms, not local terms. This merger gives us those European dimensions that we needed.”