Generali investors may not back rival plan to shake-up management

Investors in  Generali won't likely back a bid by a key shareholder to shake-up management and redirect the global insurer, but could very well leverage that plan to force current management into higher gear.

“We believe the re-election of the existing management team is the most likely outcome, as this team has established a strong track record in the past six years,” analysts at the Berenberg brokerage wrote in a note to institutional clients.

But a rival plan for the group, including a doubling of the EPS growth target to a 14% compound annual rate, could generate some investor head-nodding and “prompt management to over-deliver on its [current] EPS CAGR target,” analyst Michael Huttner wrote.

At issue is a corporate strategy for Generali released by major shareholder Francesco Caltagirone who leads a running bid to wrest the insurer from the grip of Mediobanca. That plan calls for aggressive M&A and bold cost cuts to deliver twice the EPS growth through end-2024 as offered by current management. All while maintaining the current plan for shareholder remuneration.

The hiked target “feels overly optimistic,” analysts at Deutsche Bank said in their weekly insurance-sector research. Deutsche Bank was tempted by the “clearly ambitious” targets, but found the presentation “underwhelming, and lacking in any substantive detail.”  Major cost cutting and a two percentage point decline in the P&C loss ratio require a much greater underpinning.

M&A plans could be as much of a ballast as boost, Deutsche Bank analysts warn. The current M&A marketplace doesn't seem ready to satisfy a giant with $7 billion burning a hole in its pockets for new geographic footprints. The risk of overpaying could run high, they say. Berenberg likewise speaks to “potential risks linked to more debt and more M&A.”

But Deutsche Bank, like Berenberg, suspects the new presentation “could be used as an opportunity/catalyst for investors to scrutinise the existing strategy in more detail” and ultimately lead to "an acceleration of current ambitions."

Rival shareholder factions are slated to settle the matter at an April 29 annual shareholder meeting. After a fractured 2021 shareholder meeting, Caltagirone brought fellow billionaire Leonardo Del Vecchio and others on board to build votes for the pending rematch.

Caltagirone has assembled a list of independent candidates who would join him on a revamped supervisory board and has identified Generali’s top officer for Austria and CEE, Luciano Cirina, as his pick to replace CEO Philippe Donnet. Cirina was promptly suspended from his post, then fired, on the news. Caltagirone stormed out of his own board post back in January.

Caltagirone’s presentation is rife with suggestion that the relationship with leading shareholder Mediobanca is holding Generali back. Mediobanca brings “underlying conflicts of interest” and needs to be countered with “the most stringent standards and transparency on corporate governance,” the presentation claims.

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