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When The Agnellis Go Shopping, They Really Go Shopping (Int'l Edition)


International -- European Business: ITALY

WHEN THE AGNELLIS GO SHOPPING, THEY REALLY GO SHOPPING (int'l edition)

Lately, Italy's premier capitalist clan is branching out into paper, shipping, airlines...

The Agnellis, long focused on their controlling stake in car giant Fiat, are fast diversifying. Umberto, the younger brother of 76-year-old Gianni Agnelli, is taking the clan's investment arm into numerous new businesses--as his $5.4 billion bid for Worms & Cie. indicates. And Lupo Rattazzi, a member of the emerging generation of Agnellis, is taking off as an entrepreneur in his own right.

IFIL'S GROWING APPETITE

When French dealmaker Francois Pinault launched a $5 billion hostile takeover of Paris conglomerate Worms & Cie. last month, he made a potentially fatal mistake: He didn't bother to warn Umberto Agnelli. The 63-year-old Italian is chairman of Ifil, a key Agnelli investment arm which has a 20% piece of Worms. In early October, when Pinault needed support, he telephoned Umberto to see about joining forces. But Agnelli, say insiders, didn't return the call. "He was pretty offended," says a banker friend of the family.

It's now clear that there was another reason for Umberto's silence. On Oct. 6, Ifil unveiled a $5.4 billion counterbid for the sprawling French group, which has holdings in insurance, food, paper, and shipping. The complex cash-and-share offer involves spinning off Worms's insurance ventures to Assurances Generale de France (AGF), France's No.2 insurer. When the dust clears, the Agnellis may have completed their biggest move outside of Italy--and considerably increased their already large position in French industry.

NEW AGILITY. Ifil executives in Turin are not yet claiming victory: Pinault, or even another suitor, may still up the ante for Worms. But the bid underscores how aggressively one of Europe's oldest and most powerful industrial dynasties is expanding from its home base and its core industrial holding of 30% of Fiat, the $50 billion auto giant. It also signals a new agility among Italy's top holding companies. Says one senior Ifil insider: "The decision we have to make now is where can we grow the most."

Planning is focused at Ifil and its mother company, Ifi. The two are the main publicly traded Agnelli investment groups, both run by Umberto Agnelli, the younger brother of patriarch Gianni Agnelli, and managing director Gabriele Galateri. A little more than a decade ago, Ifil was a shell used to park financial assets, such as a 7% stake in Fiat that the Agnellis bought back from the Libyan government in 1986. Since then, Ifil has moved into food, cement, tourism, and retailing. It's now looking at telecommunications. Today, its Fiat holdings represent less than 45% of its $4.1 billion in net assets. Investors clearly approve: Its shares have soared 35% on the Milan stock exchange this year. "Ifil's management is increasingly aggressive," says Andrea Azzimondi, Italy analyst at CS First Boston. "And they've shown they know how to create value."

Much of the action at Ifil reflects the financial acumen and dealmaking skills of Galateri, who's quietly emerging as a key member of Italy's younger and more outward-looking financial Establishment. After earning a master's in business from Columbia University and doing a stint at St. Gobain, the diversified French manufacturer, Galateri joined Fiat in 1977. Six years later he was finance director. In 1987, Umberto Agnelli tapped the executive, then 40, to help him turn Ifil into a global investor.

France--close by and with a familiar corporate culture--is a priority. Typically, Ifil seeks partners eager for a foothold in the lucrative but often closed Italian market. In one early diversification move, it joined France's Danone Group to buy out various Italian companies--and soon had a 2% slice of Danone itself. Worms's 3.8% of Danone would make Ifil the key shareholder in a company that, with $15 billion in sales, is Europe's third-largest food group.

HEDGED BETS. Some of Ifil's deals are transforming longstanding ties at the top of corporate Italy. One involves Mediobanca, the secretive Milan investment bank, to which Fiat has been allied for decades. Last April, however, Ifi and Ifil bought a 5% stake in Instituto Bancario San Paolo di Torino, Italy's largest bank and a potential rival of Mediobanca. Although Fiat and Mediobanca retain crossholdings, the San Paolo deal was seen as a sign that old ties are fraying--and that the Agnellis are hedging their bets in banking.

Ifil's bid for Worms may do much the same at the expense of Trieste-based Assicurazioni Generali, another longtime Agnelli ally. The insurer badly needs market share in France, and acquiring the Worms-controlled Athena insurance group would have been an ideal way in. But under Ifil's offer, AGF picks up Athena for $2 billion.

What's next for the Agnellis? Last May, Ifil entered an agreement with Auchan, the privately held French retailer, under which they will jointly develop shopping centers, hypermarkets, and other retail outlets in Italy. In late September, Ifil decided to become a shareholder in Italy's soon-to-be-privatized phone company, Telecom Italia, and insiders say that is another hint of things to come. Indeed, such diverse investments as these show that Umberto Agnelli wants to keep Ifil on a growth path--wherever it may lead.

AIR EUROPE FLIES HIGHER

Few people are truly passionate about what they do, but Lupo Rattazzi may be one. The 44-year-old scion of the Agnelli industrial dynasty has turned a lifelong fascination with flying into Air Europe, Italy's second intercontinental airline after flag carrier Alitalia. Though Rattazzi stays close to his famous family, the venture is emphatically a solo flight. "I love doing this," says Rattazzi, who pilots a single-engine Piper Malibu Mirage in his spare time.

Not that he has much spare time. On Sept. 30, Air Europe's board approved plans to take the company public by yearend. That could raise $130 million--and value Rattazzi's 19% stake at $25 million. By boosting Air Europe's profile and financing new aircraft, the IPO could also be the key to turning a successful charter operation into a rival to bigger carriers. "Rattazzi is handling Air Europe in a very competent and very dynamic way," says Keith McMullen of London-based Aviation Economics.

SUN AND SAND. Air Europe's IPO looks like an easy sell. Investors have snapped up similar offers lately. But Rattazzi has not had a trouble-free ascent. Bored with an investment-banking career in Milan, in 1988 he jumped at the chance to help found the Italian airline operations of International Leisure Group, launched in London by entrepreneur Harry Goodman. When Goodman's overleveraged dream went belly-up in '91, Rattazzi could well have crashed. Instead, he and two partners picked up the Air Europe franchise from liquidators for less than $10 million. Fearful of going it alone, they sold a 27% stake to Alitalia, which Rattazzi bought back in mid-October.

Air Europe's formula is hard to beat: low-cost vacations for Italians in their search for sun, exotic locales, and value. Its six Boeing 767s and young, nonunion crews make it attractive to tour operators putting together weeklong, all-inclusive packages to places such as Kenya and Cuba for as little as $600. Air Europe, with 1996 sales of $250 million, is among Europe's leanest carriers. According to Airline Business, a British trade journal, its $587,000 in per-employee revenue far exceeds any other European charter airline.

That efficiency will help as Rattazzi transforms his busiest charter flights into scheduled services, starting in December with twice-weekly flights to Havana. Next year, carriers flying into Milan's Linate Airport will start transferring traffic to ultramodern Malpensa Airport, Air Europe's base. That means travelers can enter the national network without changing airports--another boost for Rattazzi's operation.

Though Air Europe is Rattazzi's first venture into the industry, he brings a formidable background to it: degrees from Columbia and Harvard universities, as well as stints at Lehman Brothers Inc. and Salomon Brothers Inc. in New York. Family connections haven't hurt. Rattazzi's mother, Susanna, is Gianni Agnelli's younger sister--and a former Foreign Minister.

The Agnellis haven't invested in Air Europe, but Rattazzi uses the family when he can. Last November, when Fidel Castro visited Rome to see Pope John Paul II, Rattazzi organized a dinner for Uncle Gianni and the Cuban leader at Agnelli's penthouse near the Roman Forum. "It was fascinating to see the two exchanging stories, one a communist leader, the other, one of the world's greatest capitalists," says Rattazzi. Air Europe is now the only Italian airline authorized to fly to Havana.

Rattazzi has no illusions that the skies ahead are cloudless. Failure rates for air startups in Europe approach the 80% levels seen in the U.S. after deregulation in the 1980s. As Rattazzi sees it, too many players are fighting for routes within Europe--a business he's staying clear of. "You learn a lot from the cemetery of carriers you see in the U.S. and Europe," he says. "The moment you start to lose your focus, it all starts unraveling." With that approach, Rattazzi may ensure Air Europe a long life.By John Rossant in Rome


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