Enel investor challenges Italian government over board shake-up

A London-based hedge fund has directly challenged Italy’s government over who will lead state-controlled utility Enel, presenting its own alternative list of board candidates.

Last week prime minister Giorgia Meloni’s rightwing coalition made a series of proposals to change the make-up of the boards of state-controlled companies, including energy groups Enel and Eni and defence group Leonardo. Shareholders will have to approve these appointments at the companies’ upcoming annual meetings.

The government owns a 23 per cent stake in Enel through the finance ministry. Minority shareholders do not usually challenge the government’s proposals and get three out of nine board seats, with directors usually chosen from a list proposed by a group of domestic investors. Enel shareholders will meet on May 10.

Zach Mecelis, the chief of Covalis Capital, a Mayfair-based firm that specialises in energy investments, told the Financial Times that the proposals were the result of a political compromise.

“Shareholders should get to choose. It’s a matter of governance and transparency,” said Mecelis, who has been an investor in Enel since 2004. Covalis Capital currently owns less than 3 per cent of the €58bn utility.

“I want this toxic [management appointment] process to end.”

Flavio Cattaneo, currently a board member at insurer Generali and the former chief of state-controlled electricity infrastructure group Terna is the government’s preference for chief executive. Paolo Scaroni, chair of football club AC Milan and a former chief executive of Eni, was proposed as Enel chair.

Meloni said last week that the government’s proposals were based on “competence not political affiliation”.

The appointments process for state companies, which take place every three years, is a key moment in Italy’s political and business life. Parties in government coalitions traditionally negotiate to appoint political affiliates to top jobs in order to exercise influence over the companies during the government’s tenure.

The proposals were the result of days of fierce negotiation within the government, according to multiple people briefed on the talks. The prime minister ditched her preferred candidate to lead Enel to avoid clashing with her coalition partners, including Matteo Salvini and Silvio Berlusconi, a longtime ally of Scaroni, according to the people and multiple media reports.

Enel shares were down 4 per cent on Thursday after the proposed appointments were announced over fears of a U-turn on the current energy transition strategy, according to analysts.

“Enel’s stock will go up 30 to 40 per cent if this process is run differently,” Mecelis said.

According to Mecelis, Enel trades at a discount compared to Spain’s Iberdrola and France’s EDF mainly because political demands outweigh shareholders’ interests and company strategy.

Outgoing Enel chief Francesco Starace said last year that the company would sell €21bn in assets, getting out of countries such as Argentina, Peru and Romania to cut the company’s €96bn debt pile.

Starace clashed with Italy’s new government, which has been in power since October, over the company’s strategy. According to Mecelis, however, the new proposed management has no alternative plan to present to shareholders.

“I’m standing up for everyone else who can’t speak for themselves and like me rejects this process,” Mecelis said. “I’m not an activist, I just have no choice.”

The Italian government was not immediately available for comment. Enel will publish the list of board candidates received from shareholders on Tuesday.

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