By Christopher Emsden
ROME--The chief executive of Italian construction company Salini
is eyeing equity capital markets after his company on Monday
finalized its merger terms with former rival Impregilo SpA
(IPG.MI), to create a combined enterprise which aims to have more
than 1 billion euros ($1.3 billion) in gross operating profit by
2016.
"There's a lot of liquidity out there," Pietro Salini said in an
interview.
Salini Costruttori SpA's purchase of its larger rival is the
result of a proxy battle waged by a relative outsider whose outcome
is the strongest signal yet of changes in Italy's corporate fabric,
in the wake of a financial crisis and long recession which have
frayed nerves and power in the country's traditional business
elite.
"Small is no longer a nice thing, and Italy can't be a nation of
craftsmen with a few overlords," Mr. Salini, chief executive of
both companies, told The Wall Street Journal.
More similar deals are likely to follow, as Italian companies
need simultaneously to grow bigger and more focused to compete in
the global market, he said.
Impregilo is a historic firm long controlled by members of
Italy's so-called "salotto buono," elite families traditionally
organized around Mediobanca (MB.MI), the Milan-based merchant
bank.
Last week Mediobanca itself announced it would begin to sell off
long-owned stakes in companies--such as insurer Assicurazioni
Generali SpA (G.MI) and publisher RCS Mediagroup SpA (RCS.MI)--that
enabled it to exercise broad power but did little to improve
economic efficiency in the euro zone's third-largest economy.
Shareholder grumblings have also been heard at tire maker
Pirelli SpA (PC.MI) and Telecom Italia SpA (TI), both of which have
long been saddled with awkward governance structures geared to
serving controlling shareholders.
Mr. Salini said he began his raid on Impregilo when he noticed
the company didn't even bother to bid to build the third bridge
over the Bosphorus in Istanbul.
"That was incomprehensible to me," Mr. Salini said, adding that
his own company had tried to bid for the job, and Impregilo had
actually built the second bridge connecting Asia and Europe.
He took a closer look and determined that Impregilo had become
an unwieldy conglomerate, devoting hefty capital to a fuzzy array
of activities such as operating toll roads and waste removal
businesses while drifting away from its origins.
"It's one thing if you are huge like Siemens or General
Electric, but smaller conglomerates are often rudderless," he
said.
Salini started buying Impregilo shares at EUR1.60 each, hoping
to forge a partnership. Stymied on that front, the company made a
public tender at a hefty EUR4 a share and ended up with just short
of 90% of Impregilo.
That generous bid--initially financed by a foreign bank,
France's Natixis (KN.FR), clinched the deal and also signals the
combined company's intention to court favors from capital markets,
with an equity issue likely within the next 12 months, Mr. Salini
said.
Impregilo shares rose 5.6% to EUR2.66 on Tuesday, after it and
Salini agreed to share-swap terms that basically amount to a
reverse merger whereby Salini will transform into a listed company.
That price reflects a EUR1.49-per-share jumbo dividend after Salini
ordered Impregilo to sell a Brazilian toll road concession.
"We want to be a pure player and compete in very large civil
engineering projects, and to do so as a full-gamut player not as a
broker shepherding other contractors, which means we have to be
big," Mr. Salini said.
"It's actually difficult to keep things simple but that's what
we have to do," he said of Italy's industrial sector, "which lacks
scale despite being vast."
"We have to polish our businesses as if they were racing cars,"
he added.
The merged company will be named Salini-Impregilo and is aiming
to boost group revenue by 16% a year through 2016, bringing total
turnover to EUR7.4 billion. Earnings before interest, taxes,
depreciation and amortization are should rise fourfold to EUR1
billion--almost as much as Impregilo's current stand-alone market
capitalization--according to the strategic plan the two boards also
approved late Monday.
The bulked-up company, which recently won a large contract in
Qatar and is already at work widening the Panama Canal, will also
be able to compete more effectively with French and Spanish giants
in the sector, said Claudio Costamagna, the former Goldman Sachs
banker who Mr. Salini recruited as chairman of Impregilo in a
further nod to international markets.
A share sale aimed at a larger float will be carried out soon,
Mr. Costamagna said.
Write to Christopher Emsden at chris.emsden@dowjones.com
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