Salini CEO Eyes Equity Market After Impregilo Takeover

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 [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires