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Can A Pumped Up Eni Get Into Fighting Trim?


The Corporation

CAN A PUMPED-UP ENI GET INTO FIGHTING TRIM?

When Gabriele Cagliari spoke at a World Economic Forum seminar high in the Swiss Alps last January, he turned more than a few heads. The husky-voiced boss of Italy's vast energy group Ente Nazionale Idrocarburi (ENI) proposed that OPEC nations turn back decades of nationalist policies and sell portions of their crude reserves to international oil companies as a way to stabilize world energy markets through producer-consumer cooperation. One in the elite crowd who was especially taken with the Italian's market-oriented ideas was Andres Sosa Pietri, the dynamic head of Petroleos de Venezuela, South America's largest energy group. The two struck up an instant friendship, and the Venezuelan flew to Rome days later.

In a corporate suite at ENI's glass-walled headquarters, Cagliari put his cards on the table. Recalls Sosa Pietri: "He said very bluntly, 'You Venezuelans have preferred Germans to Italians. Why is that?' I answered that this wasn't the case and that I didn't understand why we haven't done business together. He said, 'That's what we are prepared to do.' " Sosa Pietri chuckles. "Cagliari is very clear and very aggressive. He knows exactly what he wants." And, the Venezuelan might have added, he gets results: Just three months after their Swiss encounter, the two men signed deals on petrochemical and crude-oil development ventures valued at $330 million--making ENI one of Petroleos de Venezuela's largest joint partners.

The fire-breathing, six-legged dog that is ENI's corporate symbol is throwing sparks again. After just 18 months at the top, Cagliari, 64, a chemical engineer from the Emilia-Romagna area of Northern Italy, is eyeing deals in Asia, Africa, the U. S., and the Soviet Union (table). It's all part of a heady plan to transform the Italian national oil company from a mere global player to a worldwide power. In April, ENI announced a 1990 net of $1.7 billion--moving past auto giant Fiat as Italy's most profitable corporation. With revenues of $41.6 billion, it is the largest European energy group after Royal Dutch/Shell and British Petroleum Co. But to free up resources for his global push, Cagliari must reorganize operations and cut fat in Italy--where ENI controls over 50% of the oil market. And that means fighting tough battles at home.

FIDDLED WITH. Whether Cagliari can fulfill his agenda will be a key test of the ability of state-owned European companies to change with the times, especially as the post-1992 unified European market tears away nationalistic barriers.

While ENI is a sophisticated worldwide player, many of its domestic operations are inefficient, a result of decades of government meddling that often subordinates company strategy to providing jobs in depressed areas at home. And the cozy links between state-owned companies such as ENI and Italy's governing political parties can make a manager's job tough indeed. "My problem," concedes Cagliari, "is that I not only have to convince my people within ENI when I want to do something, but I also have to convince people within the government."

Indeed, few corporate leaders had a rougher start than Cagliari, who was picked to head ENI in November, 1989. His predecessor, Franco Reviglio, had transformed ENI from a persistent money-loser to a cash cow--largely through cutting its bloated work force by 36%. Not only was the brilliant and aristocratic economist a tough act to follow, he walked away from a free-for-all. Reviglio had pooled ENI's chemical units with those controlled by Italy's swashbuckling agribusiness czar Raul Gardini to form the unwieldy $10 billion chemical joint venture Enimont. No sooner had Enimont been formed than each side began fighting for control in what became one of Italy's bitterest disputes between the public and private sectors.

As he entered the fray, Cagliari looked less than inspiring. Unlike Reviglio--a former Finance Minister--he had risen through the ENI ranks and lacked political clout in Rome. That's essential at a state company, where under the uniquely Italian political spoils system of "lottizzazione," or allotment, coalition parties influence who gets top jobs. And the ENI boss has to confront squabbling factions that try to dictate company policy. The ENI presidency, says one insider, "is just about the bloodiest job in the country." Reviglio's immediate predecessor, Umberto Colombo, lasted only a few months after he fell out with leading polticians.

'KNEW HIS DOSSIER.' But Cagliari had an edge. He was viewed by the heads of ENI's chief operating companies--such as oil giant AGIP and gas group SNAM -- as one of their own. And he knew his stuff. Zoltan Merszei, former chairman of Dow Chemical Co. and former vice-chairman of Occidental Petroleum Corp., first met Cagliari in 1980 when Occidental and ENI merged their chemical lines to form the short-lived Enoxy joint venture--at $7 billion, one of the biggest linkups at the time. "There was this serious, low-key guy in the ENI group across the table from us," recalls Merszei. "He just knew his dossier better than anybody else." It was his nuts-and-bolts knowledge of the chemical business, for instance, that persuaded Cagliari to buy out Gardini's 40% Enimont stake for $2.3 billion last November and create Enichem. ENI thus became one of the world's top 10 chemical producers.

Cagliari hasn't stopped there. When he took over, ENI already had a global empire spanning everything from natural-gas distribution in Yugoslavia to oil exploration in Nigeria. Since then, the company has signed new deals with foreign partners. After recent thrusts into east Germany and Hungary, ENI is trying to set up service stations in Poland and Czechoslovakia. It is studying the feasibility of joining French partners to develop a $10 billion natural-gas transportation and distribution system in Southeast Asia. In the U. S., Enichem is negotiating with Union Carbide Corp. to develop certain product lines. "If you're not global, your competition will come and take your market," says Cagliari, whose knowledge of English from a five-year U. S. stint sets him apart from previous ENI chiefs. "It's that simple."

OPENING DOORS. Cagliari's international moves are aided by fellow Socialist Gianni De Michelis, Italy's portly, globe-trotting Foreign Minister. In pursuing the country's most activist foreign policy since World War II, De Michelis has opened doors from Algiers to Mexico City. All-out Italian support for Soviet leader Mikhail Gorbachev helped snare several large Italian-Soviet energy projects. A February trip to Tehran--the first by a European foreign minister since the Islamic Revolution--paved the way for potentially huge contracts for ENI and other Italian companies.

Back home, Cagliari has equally ambitious plans. Breaking with the policy that has guided ENI since its 1953 formation, he is out to redefine the group's ties to the government. These links make the company, in theory, a mere appendage of the Ministry of State Participation. That means key decisions often are debated by Italy's cabinet. When pork-barrel projects need to be cut or workers laid off, the government looks long and hard. "The things Cagliari does abroad don't involve sacrifices in Italy," says one aide. "Much trickier will be whether he can disinvest in Italy, sell off companies, and shut down plants."

Cagliari must quickly tackle these issues. Enichem, in particular, needs to off-load poorly run lines such as agri-chemicals, where it is losing close to $1 million a day. Cagliari also wants Enichem's two Italian refineries to go on the block as part of a plan to "relaunch Enichem as an international force." Enichem announced in April that it will shed some 10,000 jobs by 1994, more than 25% of its work force. But unions and regional politicians are fighting this move. And if Cagliari goes much further "and truly wants to make profits for Enichem rather than run a social-security system, he's going to start shaking up the Italian power structure," says Pierre Terzian, head of Paris-based energy consultants Petrostrategies.

Cagliari's job would grow easier under a plan to turn ENI into a joint-stock company. This would help him push through his agenda, since he would answer to a board of directors, not a government ministry. This, says Cagliari, "would make a more efficient structure, more rapid in its ability to take decisions." Even without this overhaul, ENI hopes to kick off a major privatization program this year through a Cagliari plan to sell off up to 40% of ENI's huge gas-supply and engineering company, SNAM. That move could add $4 billion to ENI's coffers and help bankroll its stepped-up capital investments of some $38 billion through 1995. Largely because of new debt taken on to cover the Enimont buyout, "our cash flow alone can't cover this," says Cagliari. Asset sales at Enichem could bring in another $1.75 billion.

Cagliari has not had things entirely his way. He has had to accept political appointments in ENI's upper echelons, for example. But, notes Frank J. Pizzitola, senior partner at New York investment bank Lazard Freres & Co.: "If Cagliari continues to be successful, then he's going to be able to do many more things. He might lose a battle here and there, but he'll win the war." So far, at least, he's on the winning side.John Rossant in Rome, with Gail DeGeorge in Miami


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