Privatization, Employment and Employees
Session V: Employee Participation in Privatization Transactions Policies
and Performance: The Italian Experience
Olimpia Cuomo
Council of Experts, Italian Ministry of Economy
Istanbul, 11th October 2002
Concerns and Objectives of Privatisations
Concerns
Results

Budget deficit and public debt
high and rising

Debt /GDP ratio reduced from
123% in ’94 to 109.8% in 2001

Inefficient structure of many
publicly-owned Italian
companies

Transformation of SOE into joint
stock companies

Establishment of legislative frame
work to promote efficiency and
competition

Development of the Italian
market; role of retail investors and
employees


Absence of clear regulatory
framework over public utility
sectors
Lack of a developed Italian
capital market
The Privatisation Programme - Key Accomplishments
Sellers
Period
Gross Amount (Euro bn)

Italian Treasury
1994-May 2002
67

IRI Group
July 1992-Dec 2000
30

ENI group
July1992-Dec 1998
4.1
July 1992 – May 2002
101.1
Total
Structural Changes in the Italian Equity Market

Retail participation has consistently increased through privatization programme
NUMBER OF RETAIL INVESTORS IN PRIVATISATION OFFERINGS
Finmeccanica June ‘00
1,158,000
1,500,000
Autostrade Dec '99
3,800,000
Enel Oct '99
Acea July '99
1,250,000
BMPS June '99
2,120,000
BNL Nov '98
AEM July '98
1,600,000
438,000
ENI 4 June '98
1,700,000
Telecom Italia Oct '97
2,100,000
ENI 3 June 97
ENI 2 Oct '96
ENI 1 Nov '95
INA June '94
830,450
383,000
190,000
420,000
BCI Mar '94
IMI Feb '94
Credito Italiano Dec '93
1,000,000
375,000
292,000
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Privatisations directly managed by the Treasury
3,000,000
3,500,000
4,000,000
Employee Participation was Incentivised
Treasury Objectives





Incentives




Reinforce employee support to Privatization process
Improve labor relations
Reinforce employee’s sense of belonging and goodwill
towards privatized company
Encourage employee’s board representation
Achieve additional reliable demand of shares
Guaranteed minimum number of shares
Price discount
Bonus shares
Use of the TFR; Grant financing
Incentives to Employees
ENI 3
TELECOM
Banca
ROMA
ENI 4
BNL
ENEL
1%
1%
1%
NO
NO
NO
Underpricing**
13,65
6,5%
NA
14,34%
17,32%
4,04%
Bonus
Shares
1/10
1/10
NO
1/10
1,1/10
1,1/20
Delivery
B. Shares
12 months
12 months
NO
12 months
12 months
12 months
Grant
Financing
NO
YES
YES
YES
YES
YES
Using TFR
70%
70%
70%
75%
100%
100%
Additional
Discount*vs
retail
* On the official price on the day before the set of OPV price
** Methodology for calculating underpricing also accounts for bonus share
benefits and additional discounts vs. retail.
On Average 73% of Employees Applied for Shares…
th
100
100%
90
90%
80
80%
70%
70
60%
60
50%
50
40%
40
30%
30
20%
20
10%
10
0%
S.Paolo Imi
TI
BDR
BNL
Number of Employees applying for shares
Applying Employees/Potential Employees
ENI4
ENEL
…With a High Retention Rate Over Time
200
180
181
179
171
160
million
140
111
120
100
80
60
40
20
0
TI
ENEL
Number of shared assigned to Employees
Number of shares still owned by employees after 12 months
Case Study: Alitalia
The Combined Global Offering

In 1996 Alitalia started a restructuring plan which provided for significant
cost reductions and strategic reorganisation

Within the implementation of Alitalia’s plan, in 1998 the Italian Government
(which owned 85% of Alitalia’s share capital through its subsidiary IRI)
decided to undertake a capital restructuring of the Company and start the
privatisation process

The transaction (the “Global Offering”) involved three different share
offerings:

Capital Increase via a rights offering

Employee Offering

Secondary Share Offering
Case Study: Alitalia (cont.)

Following the completion of the Global Offering in June 1998, the Italian
Government decreased its holding in Alitalia from 85% to 53%

Market free float increased from approximately 15% to 27% while 20.5% of
the company was controlled by Alitalia’s employees
Market
14.9%
Employees
20.5%
IRI
53.0%
IRI
85.1%
Market
26.5%
Case Study: Alitalia
The Employee Offering


The Offering to employee was the result of the agreement (the “Labor
Agreement”) with the unions and provided that employees accept a reduction in
salary and higher productivity standard
Employee Share Ownership Scheme:

First ever in Italy of such large scale

317 mn Shares (20.5% of Company’s share capital) attributed to
Alitalia’s full time employees

The Company paid the purchase of such shares (offered to employees
at nominal value as additional remuneration) through existing capital
reserves accrued overtime

3 years lock-up

3 employee representatives on Board of Directors (out of a total of 17
representatives)
Case Study: Alitalia
Rationale of the Employees Participation

History of high strikes level and work stoppages with significant impact on
Alitalia’s financials. In 1995 an aggregate of 33 labor actions grounded over
2,000 flights

Restructuring process in order to reduce the cost of personnel and restore
profitability

Labor Agreement signed with eight employees unions provided for labor cost
savings, improvements in employees productivity and equity ownership of
between 20% and 30%

Employees participation to Alitalia’s Board of Directors has assured a more
active role to personnel’s Representatives in the Company’s strategic decisions
Case Study: Alitalia (cont.)
Alitalia’s Experience

The participation of the employees was a significant event in the history of
the Company

Alitalia as well as many national carriers has suffered from difficult market
conditions mainly due to an overall strategic industry repositioning and
external events which have been affecting air transport over recent years
Positives

Reduction of conflict between
unions and management
Issues



Shared objectives and decisions


Reduction of labour cost
Negative impact on stock
liquidity
Potential impact on stock price
upon monetisation
Potential conflicting role at
representatives level; Unions
representative or Shareholders
representative?
Conclusions


Development of employee share participation evident, but:

participation to financial results and in decision making processes
still small

no direct impact on share price performance
EU Member States acknowledge importance of wider employee
participation to enterprise results through:

profit sharing

share ownership

tax break
Conclusions

How to cope with a widespread employee share ownership?

The role of the European Union

A new framework to encourage employee equity participation

Necessity of linking decision-making and incentives, with value
creation as the ultimate objective
Towards an “employee
capitalism”?