CHANGING CHAIRS IN ITALY

UNCLAS SECTION 01 OF 02 ROME 003008

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: EIND EAIR PINR EAIR PINR IT ITEIND
SUBJECT: CHANGING CHAIRS IN ITALY

SUMMARY
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1. (U) THE GOVERNMENT OF ITALY, SPECIFICALLY THE MINISTRY OF
ECONOMY AND FINANCE, RECENTLY CHANGED ITS SENIOR LEADERSHIP
IN THREE OF THE CORPORATIONS IN WHICH IT HAS A MAJOR
INTEREST: ENI (ITALIAN HYDROCARBON AGENCY),ENEL (NATIONAL
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ELECTRICITY COMPANY),AND FINMECCANICA (A GROUP OF DEFENSE,
AVIATION AND AEROSPACE INDUSTRY COMPANIES). THESE ARE THE
THREE LARGEST INDUSTRIAL GROUPS REMAINING CONTROLLED BY THE
GOI. THE APPOINTMENTS WERE WELL RECEIVED BY THE FINANCIAL
MARKETS WHICH PERCEIVED THEM AS A WELCOMED SIGN OF CONTINUITY.

FINMECCANICA
--------------

2. (SBU) PIERFRANCESCO GUARGUAGLINI, FORMER PRESIDENT OF
FINCANTIERI (ITALIAN SHIPBUILDERS' ASSOCIATION) IS THE NEWLY
APPOINTED CHAIRMAN OF FINMECCANCA. GUARGUALINI, BORN IN
1937, HOLDS A PH.D. IN ELECTRONIC ENGINEERING FROM THE
UNIVERSITY OF PENNSYLVANIA. IN ADDITION TO HARMONY WITH THE
GOVERNMENT, CONTINUITY AND MARKET CONFIDENCE, GUARGUAGLINI
MAY HAVE A MANDATE TO INCREASE INTERNATIONALIZATION OF THE
COMPANY. FINMECCANICA IS A PARTIALLY STATE-OWNED COMPANY
(37.4 PERCENT OWNED BY THE GOI) HOLDING THE MAJOR ITALIAN
AEROSPACE PLAYERS (ALENIA AERONAUTICA, ALENIA DIFESA, ALENIA
SPAZIO, 50 PERCENT OF ALENIA MARCONI SYSTEMS, AND 25 PERCENT
OF AERMACCHI). ALTHOUGH THERE IS SPECULATION ABOUT CONTINUED
PRIVATIZATION WHEN THE MARKETS STRENGTHEN, GUARGUAGLINI SAID,
AT A RECENT LUNCH WITH AMBASSADOR SEMBLER THAT THE GOVERNMENT
DOES NOT WISH TO PRIVATIZE ANY MORE OF FINMECCANICA, THUS
PROTECTING ITALY'S STRATEGIC AND DEFENSE INDUSTRIES. HE
ALLOWED THAT THE GOVERNMENT MAY DECIDE TO SPLIT SOME OF THE
COMPANIES INTO CIVIL AND DEFENSE COMPONENTS AND PRIVATIZE THE
CIVILIAN ELEMENTS, BUT EVEN THIS HAS NOT BEEN DECIDED.
GUARGUAGLINI ALSO CONFIRMED RUMOR THAT FINMECCANICA WILL BE
EXPECTED TO TAKE OVER FINCANTIERI, THE CORPORATION HE
PREVIOUS HEADED. STILL OWNED 100 PERCENT BY THE GOI,
ALTHOUGH IT HAS BEEN SLATED TO BE PRIVATIZED, FINCANTIERI
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EMPLOYS ROUGHLY 10,000, HAS A TURNOVER AROUND TWO BILLION
EUROS/YEAR, AND HAS SUBSTANTIAL ORDERS FOR ITS SPECIALTIES --
CRUISE AND NAVAL SHIPS. FINCANTIERI AND FINMECCANICA HAVE
TRADITIONALLY WORKED CLOSELY TOGETHER, AND COULD SHARE MORE
THAN FIVE BILLION EUROS IN CONSTRUCTION IF THE NAVY SPENDS
THIS ON A NEW CLASS OF FRIGATES. GUARGUAGLINI ALSO NOTED
THAT, ALTHOUGH FINMECCANICA HAD DROPPED ITS BID TO BUY
MARCONI COMMUNICATION FOR THE TIME BEING, THEY FULLY EXPECT
MARCONI TO BE WILLING TO PURSUE THE DEAL A LITTLE LATER.


3. (U) ROBERTO TESTORE IS THE NEWLY APPOINTED MANAGING
DIRECTOR AND DIRECTOR GENERAL OF FINMECCANICA. GIVEN THAT HE
WAS A FIAT EMPLOYEE (SINCE 1976) AND THE MANAGING DIRECTOR OF
FIAT AUTO (SINCE 1996),SOME THINK THAT HE MAY BE LOOKING TO
CONSOLIDATE FIAT'S DEFENSE BUSINESS INTO FINMECCANICA. HIS
NEW RESPONSIBILITY HOWEVER FOCUSES ON THE GROUP'S OPERATIONAL
MANAGEMENT AND ON THE INTERNAL REORGANIZATION OF THE
FINANCIAL STRUCTURE OF THE GROUP.


4. (SBU) COMMENT: SENIOR MANAGEMENT'S VIEW ON PRIVATIZING
FINMECCANICA IS AT VARIANCE WITH WHAT WE HEAR ELSEWHERE. IT
IS POSSIBLE THAT, AFTER HAVING MET THE EU'S MINIMAL
PRIVATIZATION REQUIREMENTS, THE GOI WILL NOT PRIVATIZE ANY
MORE OF FINMECCANICA. THERE IS ALSO THE VIEW THAT SELLING
OFF THE COMMERCIAL ELEMENTS LEAVES THE WEAKER COMPONENTS IN
GOI HANDS, WITH A NEED FOR LONG-TERM SUPPORT. MARCONI
COMMUNICATION IS NOT PRIZE, BUT IF THE GOVERNMENT IS LOOKING
TO 'PROTECT' WEAK DEFENSE PLAYERS, MARCONI MAY EVENTUALLY BE
ASSIMILATED INTO FINMECCANICA. OUR VIEW ON FINMECCANICA'S
ACQUIRING FIAT'S DEFENSE INDUSTRIES IS THAT IT WOULD NOT LEAD
TO ANY NET SYNERGIES, BUT JUST BE TRADING ONE FORM OF
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POLITICAL POWER WITH ANOTHER. END COMMENT.

ENI
---

5. (U) THE GOI OWNS MORE THAN 30 PERCENT OF ENI WHICH IS
MORE NARROWLY FOCUSED ON ENERGY AND ENSURING ITALY'S ENERGY
SECURITY. ENI ONLY HAD A PARTIAL CHANGE IN THE BOARD BECAUSE
VITTORIO MINCATO, THE MANAGING DIRECTOR, HAS BEEN
RECONFIRMED. MINCATO HAS ONLY BEEN IN PLACE FOR SEVERAL
YEARS, AND IS WIDELY REPUTED AS SHOWING STRONG LEADERSHIP.
HE WILL BE SUPPORTED BY A NEWLY NAMED CHAIRMAN, ROBERTO POLI,
WHO IS A WELL-KNOWN EXPERT IN CORPORATE FINANCING. FROM 1978
TO 1998 HE TAUGHT CORPORATE FINANCE AT CATHOLIC UNIVERSITY OF
MILAN. POLI HAS IN THE PAST BEEN CHAIRMAN OF PUBLITALIA OF
THE BERLUSCONI GROUP AND A MAIN CONSULTANT OF THE BERLUSCONI
FAMILY IN THE RESTORATION OF FININVEST, BERLUSCONI'S ASSET
HOLDING COMPANY.

ENEL
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6. (U) TO THE SURPRISE OF MANY THERE WAS A COMPLETE
OVERHAUL AT ENEL WHERE THE GOVERNMENT OWNS ABOUT 70 PERCENT.
PAOLO SCARONI WILL BECOME THE NEW MANAGING DIRECTOR. HE HAS

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UNCLASSIFIED PTQ4659

PAGE 01 ROME 03008 02 OF 02 191508Z
ACTION EUR-00

INFO LOG-00 NP-00 AID-00 AMAD-00 ACQ-00 CIAE-00 COME-00
CTME-00 DODE-00 ITCE-00 DOTE-00 DS-00 EB-00 EXME-00
FAAE-00 FBIE-00 UTED-00 TEDE-00 INR-00 ITC-01 NSAE-00
OMB-01 OPIC-01 STR-00 TEST-00 TRSE-00 DSCC-00 G-00
SAS-00 /003W
-------------- BF850B 191520Z /38
R 191435Z JUN 02
FM AMEMBASSY ROME
TO SECSTATE WASHDC 4340
INFO AMCONSUL FLORENCE
AMCONSUL MILAN
AMCONSUL NAPLES

UNCLAS SECTION 02 OF 02 ROME 003008

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: EIND EAIR PINR EAIR PINR IT ITEIND
SUBJECT: CHANGING CHAIRS IN ITALY

BEEN CHIEF EXECUTIVE OF PILKINGTON AEROSPACE, A BRITISH
MULTINATIONAL, AND HE IS ALSO A CONSULTANT OF BAE. AS
MANAGING DIRECTOR OF TECHINT, HE WAS CONDEMNED TO ONE YEAR
AND FOUR MONTHS FOR PAYING BRIBES TO THE PSI (PARTITO
SOCIALISTA ITALIANO) PARTY FOR ILLEGAL BIDS IN ENEL'S POWER
PLANTS.
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PAGE 02 ROME 03008 02 OF 02 191508Z


7. (SBU) PIERO GNUDI WILL BECOME THE PRESIDENT, AND LEAVE
HIS POSITION AS CHAIRMAN OF IRI (THE FORMER STATE HOLDING
COMPANY FOR GOVERNMENT ENTERPRISES),WHICH IS REACHING THE
END OF ITS NATURAL LIFE. GNUDI IS VIEWED AS A FAMILIAR FACE
AND GIVEN HIS EXPERIENCE AT IRI WITH LIQUIDATING ITALIAN
PARASTATALS HE SHOULD BE ABLE TO MOVE FORWARD WITH THE NEXT
STEP IN THE PRIVATIZATION OF ENEL WHEN THE TIME IS RIGHT.


8. (SBU) FERNANDO NAPOLETANO, NEWLY APPOINTED TO THE BOARD
OF ENEL, CONFIRMED IN HIS INTRODUCTORY MEETING WITH THE
AMBASSADOR REPORTS THAT MINISTER OF PRODUCTIVE ACTIVITIES
MARZANO HAS GIVEN ENEL THE MANDATE TO CONTINUE TO EXPAND
ABROAD IN ITS MAJOR SECTORS: ENERGY AND TELECOMMUNICATIONS.
THE GOVERNMENT ENVISIONS A MULTI-SECTOR CORPORATION ALONG THE
LINES OF A GE TYPE OF OPERATION. NAPOLETANO, THE HEAD OF
BOOZ, ALLEN, HAMILTON ITALIA, EMPHATICALLY SAID EXPANSION WAS
THE ONLY REASON HE HAD BEEN APPOINTED TO THE BOARD AND THE
ONLY REASON HE HAD ANY ADDED VALUE FOR ENEL.

COMMENT
--------------

9. (SBU) WE DO NOT ANTICIPATE THAT THE CHANGES IN THE
LEADERSHIP OF THESE GROUPS WILL HAVE A MAJOR EFFECT FOR U.S.
CORPORATIONS. THE TOP MANAGERS ARE ALL CITED AS COMPETENT
AND AUTHORITATIVE IN THEIR RESPECTIVE FIELD. WHAT IS
HAPPENING HOWEVER IS THAT THIS GOVERNMENT IS STAMPING ITS OWN
BUSINESS ORIENTED STYLE ON THE LEADERSHIP. THE OUT-GOING
GOVERNMENT HAD SALTED SENIOR POSITIONS WITH CLOSE ALLIES;
WHAT IS INTERESTING ABOUT THESE CHANGES IS NOT THAT THEY
OCCURRED BUT THAT THEY TOOK SO LONG TO OCCUR. THIS
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GOVERNMENT IS NOT NECESSARILY PUTTING IN PARTY FAVORITES, BUT
RATHER THEY APPEAR TO BE SEEKING THOSE WHO ARE WELL-KNOWN TO
THEM WHO ALSO HAVE A STRONG AND SUCCESSFUL BUSINESS
ORIENTATION.
SEMBLER

UNCLASSIFIED

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2002ROME03008 - Classification: UNCLASSIFIED