Breakingviews: Ray-Ban heirs inherit unnecessary Mediobanca feud

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A Mediobanca logo is pictured at Mediobanca headquarters in Milan, Italy November 12, 2019. REUTERS/Flavio Lo Scalzo/File Photo

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MILAN, Aug 9 (Reuters Breakingviews) – Leonardo Del Vecchio’s successors inherited vast wealth but also tricky investment issues.

The rags-to-rich Italian entrepreneur died in June, leaving an estimated fortune of $26 billion. His main legacy is a 32% stake in EssilorLuxottica (ESLX.PA), worth $74 billion, which makes Ray-Ban and Oakley sunglasses and Varilux lenses. The business, which Del Vecchio founded as Luxottica and affectionately referred to as “la fabbrica” ​​(the factory), is expected to remain in family hands. The fate of Del Vecchio’s nearly 20% stake in Italian investment bank Mediobanca and a related 10% stake in $24 billion insurer Assicurazioni Generali ), is less certain.

Responsibility for the management of the family vehicle Delfin has been entrusted to the Managing Director of EssilorLuxottica, Francesco Milleri. He first crossed paths with Del Vecchio as an IT consultant in the mid-2000s and gained his mentor’s trust after spearheading Luxottica’s digital transformation. With the billionaire’s support and affection, he became CEO of Luxottica in 2017, eventually taking on the same role after it merged with French rival Essilor. He now also chairs the company listed in Paris.

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Managing Del Vecchio’s fortune, however, is a big challenge. Other Italian business dynasties tended to entrust control to a family member. Stellantis (STLA.MI) chairman John Elkann, for example, oversees the automotive empire built by his grandfather Gianni Agnelli. Alessandro Benetton runs the family’s Motorway Jerseys group. Italian Prime Minister Silvio Berlusconi entrusted his children with the task of running entire swaths of his publishing and media empire.

Del Vecchio, on the other hand, did not choose a successor within his family circle. Instead, it created a cumbersome governance structure. He gave his six children, his last wife Nicoletta Zampillo and his son equal 12.5% ​​shares in Delfin, but chose Milleri to oversee his fortune. Any major change requires 88% of the vote, giving each family member an effective veto, but also making it difficult for them to replace Del Vecchio’s protege.

This arrangement could over time cripple Delfin or trigger legal disputes. The more pressing question is what to do with the $1.5 billion stake in Mediobanca and the $2.4 billion investment in Generali. In an interview with Italian financial daily Il Sole 24 Ore last month, Milleri said he would handle the stakes in line with Del Vecchio’s thinking.

Yet the billionaire’s ambitions for the two financial investments have never been entirely clear. The entrepreneur started buying Mediobanca shares in late 2019 after falling out with CEO Alberto Nagel over funds for a charitable foundation. Del Vecchio accused Mediobanca of being too dependent on dividends from its 13% stake in Generali and of not pursuing an ambitious growth plan. Earlier this year, Del Vecchio backed a failed attempt to replace Generali boss Philippe Donnet, who has the backing of Mediobanca, and install a new slate of directors.

Now that the tycoon is gone, some family members may be questioning the reason for continuing his campaign. Although Del Vecchio never revealed how much he paid for the shares, Mediobanca has achieved a total return of just 2% per year since September 2019, when news of his purchases first emerged. Over the same period, the European benchmark STOXX 600 index gained 8% per year.

One way to add value would be to sell Mediobanca’s stake to a potential suitor. However, buyers are scarce. A bid from Intesa Sanpaolo (ISP.MI) would face potential antitrust issues given Mediobanca’s tie to Generali, which competes with Italy’s biggest lender. Andrea Orcel, the CEO of rival UniCredit (CRDI.MI), may be interested in Mediobanca’s advisory and consumer credit divisions. But his bank’s depressed valuation – it trades at just 36% of book value, well below Mediobanca’s 70% – is a stumbling block to a deal.

An alternative approach would be to support Mediobanca in its pursuit of a suitable M&A target. Nagel said he was ready to sell Generali’s stake in the bank to help pay for an asset manager buyout. Mediobanca has already considered buying Banca Generali (BGN.MI), a $3.3 billion fund manager controlled by the insurer. But its mooted offer failed to win Generali’s backing, insiders say.

Italian political concerns further complicate the picture. The collapse of Prime Minister Mario Draghi’s government in July rekindled concerns about the country’s debt sustainability, also depressing valuations of financial companies. If those fears grow, Del Vecchio’s heirs may find that pursuing the contractor’s feud becomes increasingly costly.

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(The author is a Reuters Breakingviews columnist. The views expressed are her own.)

BACKGROUND NEWS

Eyewear billionaire Leonardo Del Vecchio, who died in June, chose Francesco Milleri, chief executive of EssilorLuxottica, to run his family fortune, estimated at some $26 billion at the time.

Del Vecchio’s family holding company, Delfin, owns 32% of the Paris-listed eyewear group, 19.4% of Italian investment bank Mediobanca and 9.8% of Assicurazioni Generali, the country’s largest insurer.

In an interview with Italian daily Il Sole 24 Ore published July 30, Milleri said he would manage investments in Mediobanca and Generali in line with Del Vecchio’s strategy.

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Editing by Peter Thal Larsen and Oliver Taslic

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.

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