The Lex Newsletter: Italy puts a new spin on national security 

Dear reader,

Greetings from Italy, where Giorgia Meloni’s nationalistic government is putting foreign investors through the wringer.

On Monday, Italy used its “golden power” — a law which enables it to block takeovers if there are concerns over strategic Italian interests — to safeguard employment at four Italian factories making washing machines and other home appliances.

Meloni’s government is wading into a deal announced in January that would combine Whirlpool’s business in Europe, the Middle East and Africa with that of Arcelik. The new company, which expects €6bn of annual revenues, would be mostly owned by the Turkish group. But Italy has ruled that it will only agree to the transaction if the lights are kept on at Whirlpool’s Italian factories, which employ 4,600 people.

This is a daring stance. Neither Whirlpool nor Arcelik is Italian. But Whirlpool, which bought local appliance maker Indesit in 2014, has a big footprint in the country. Domestic reporting of the government’s decision is only gently couched in the language of strategic security, with references to Whirlpool’s technological knowhow. For the most part, this appears to be unapologetic protectionism.

The key takeaway for investors is that Meloni seems determined to stretch golden power rules to justify a more active stance on business.

To be fair, they should have suspected as much. In April, Italian tyremaker Pirelli confirmed that the government was probing Sinochem’s shareholding in the company. That was in the absence of any corporate transaction involving the Chinese group.

Handily for Meloni, Italy’s golden power rules are designed to be fairly stretchy. The government has broad scope to determine what it considers strategic. It can impose sanctions on companies that fail to seek approval for transactions it thinks should be scrutinised. The upshot is that companies tend to seek preliminary approval for a lot of what they do. That puts Meloni in a strong position to use golden power legislation to protect jobs.

She may soon have occasion to try her hand again. Whirlpool is not the only company to manufacture white goods in Italy. The country used to have several indigenous companies, such as Indesit. Over time, many have sold themselves to international giants while maintaining production facilities. Today, the sector is struggling to make money from European production. Some form of consolidation looks likely.

Witness, for instance, the rumours surrounding a possible bid for Electrolux from China’s Midea. The Swedish group, which has reportedly not welcomed the approach, has plants in Italy that it inherited when it bought Zanussi in 1984. Should a transaction materialise, Meloni may once again be tempted to impose local employment as a condition.

Such an expansion of Italy’s protectionist arsenal will be unwelcome news for many investors. For one thing, if the logic of some M&A deals is to cut costs, imposing conditions that preserve jobs might result in deals falling through. Even if the transactions close, forcing companies to keep unproductive plants open is not necessarily a long-term solution to economic malaise. More broadly, the perception that the Italian government is willing to push the adaptation of rules could discourage investment in the country.

Then again, Meloni is not the only protectionist in town. Under previous governments, Italy has often attempted to prop up limping companies to preserve employment. National airline Alitalia is a case in point. Other European countries have similar instincts. France is known for a wide interpretation of strategic assets, including milk and yoghurt, that can scuttle deals. Spain waved through IFM Global Infrastructure’s acquisition of 14 per cent of Naturgy in 2021 on the condition that the Australian fund maintained the utility’s headquarters and employees in Spain.

Italy’s latest move may not be investor-friendly but it is unlikely to cause ructions. That is just as well given that the highly leveraged country, periodically tipped to spiral into crisis, is finally having a welcome moment of respite in capital markets.

Elsewhere in Europe

When I am not thinking about Italy, I am often thinking about energy. Of late, I have been fascinated by the different ways in which environmentally motivated activists and investors have been pushing for change, from AGMs to the Irish courts. Progress is still slow, but it does feel as though something is shifting.

Enjoy the rest of your week,

Camilla Palladino
Lex writer