Italy Small-Cap at Cheapest Since 2002 Spur Takeovers

By Armorel Kenna

Aug. 12 (Bloomberg) -- Families that run publicly traded Italian companies may have the best opportunity in six years to take them private.

The Montanari and Marazzi families are leading takeovers of small companies that total 2 billion euros ($3 billion). Members of the MSCI Italy Small-Cap Index, trading at the lowest level relative to earnings since 2002, are being bought out at a record pace. All the companies going private in Italy have market values of less than 1 billion euros.

``This delisting trend is the biggest I've ever seen,'' Pio De Gregorio, Centrobanca SpA's head of equity research and trading in Milan, who's been tracking Italian stocks for the past 15 years, said in a telephone interview.

Chairman Corrado Montanari, 67, and his family are acquiring shipping company Navigazione Montanari SpA for 30 percent less than the stock's record in April 2007. Filippo Marazzi, 59, and sister Rosaria, 53, led the buyout of Marazzi Gruppo Ceramiche SpA, Europe's biggest tilemaker, after the stock lost almost a third of its value since the initial public offering in 2006.

The Small-Cap Index of 123 companies, down 23 percent this year, is trading near a 2 1/2 year low, tracking a 24 percent drop in Italy's benchmark S&P/MIB Index and a slump in global equities as economies slow and credit losses mount. Europe's fourth-largest economy unexpectedly shrank 0.3 percent in the second quarter, edging it closer to the fourth recession in a decade, an Aug. 8 government report showed.

Milan Vs London

``The delisting trend will continue until the market recovers,'' said Daniele Demartis, a fund manager at Agora Investments SGR SpA in Rome. ``We could see new lows this year.''

The monthly average price-to-earnings ratio for companies in the MSCI Italy Small-Cap Index fell to 16 in July, the lowest since 2002. That compares with 27 for London's Alternative Investment Market for smaller companies, according to data compiled by Bloomberg.

More Italian businesses may be bought until the ratio rebounds by 15 percent to 20 percent, said Emanuele Vizzini, who helps manage about $1.2 billion at Investitori SGR SpA in Milan.

Pump manufacturer Interpump Group SpA, eyewear maker Safilo Group SpA, as well as luxury goods companies Tod's SpA and IT Holding SpA are also likely candidates, Demartis said. Interpump and Safilo both trade at less than 10 times earnings. Tod's is 43 percent off its peak, and IT Holding sank to a record low on July 15.

Safilo rose 3.4 percent to 1.11 euros at 9:40 a.m. today in Milan. Tod's added 0.7 percent to 40.12 euros. IT Holding fell 5.8 percent to 47.8 cents, and Interpump dropped 0.2 percent to 5.96 euros.

Record Pace

Buyouts are also popular because controlling shareholders want flexibility in how they run their companies, allowing them to make decisions without investors' approval, Centrobanca's De Gregorio said. Centrobanca is a unit of Unione di Banche Italiana ScpA, Italy's No. 4 bank by number of branches.

At least 12 companies on the Italian exchange have announced plans to go private in the first seven months, according to data compiled by Bloomberg. The same number was acquired in 2003, the previous record, according to Borsa Italiana SpA, which runs the Italian exchange.

Meatpacking, Shipping

Last month, the Cremonini family completed its purchase of Cremonini SpA, Italy's largest meatpacker. Chief Executive Officer Vincenzo Cremonini, 44, decided the holding company was trading ``at a significant discount'' to other industrial companies, he said in a June 11 interview.

G&A Montanari & Co. said on July 18 that it would buy the remaining one-third stake in Navigazione Montanari for about 128 million euros. Navigazione was founded in 1889 by Captain Giovanni Montanari to transport wood between Mediterranean ports. The offer came after the stock had slumped 42 percent from its 2007 peak. The shares have rebounded 11 percent since the announcement.

The Montanari and Marazzi families declined to comment, according to officials at the companies.

Buyouts aren't exclusive to Italy. London's Alternative Investment Market lost 106 companies, or 6 percent of its members, in the first half, according to figures on London Stock Exchange Group Plc's Web site. At the end of June, 1,657 stocks were listed on AIM.

Burani Stake

Walter Burani, 75, his wife Mariella, a designer, and son Giovanni are buying an additional 15 percent of Mariella Burani Fashion Group SpA, raising their stake from 60 percent. The Buranis on Aug. 8 offered to pay 17.50 euros a share, 36 percent less than the record in July 2007.

The Buranis had no comment, according to a company official who asked not to be named.

Publicly traded companies also incur increased costs from investor presentations and financial-reporting requirements, the ``last straw'' for families needing to focus on running their businesses, Andrea Parenti, who sells equities at Cassa Lombarda in Milan, said in a phone interview.

To contact the reporter on this story: Armorel Kenna in Milan at akenna@bloomberg.net