Bad timing

Finmeccanica woes show need for radical overhaul

Political vacuums can embolden the Italian government’s criminal investigators. Last week public prosecutors raided the premises of oil company Eni’s Chief Executive Paolo Scaroni over alleged bribes. They went one step further on Tuesday by arresting Giuseppe Orsi, the chief executive and chairman of Finmeccanica, another state-controlled company.

The move has already started a political storm, but that shouldn’t distract the next government from selling down its stake in the defence contractor, which is Italy’s second-biggest employer.

The move is laden with political significance, coming a few weeks before parliamentary elections. A scandal at Banca Monte dei Paschi di Siena has cast a bad light on the leading centre-left Democratic Party. The Orsi arrest, which relates to payments allegedly made in 2010 when he ran the helicopter division AgustaWestland, throws the spotlight back on the opposing centre-right coalition, and in particular the Northern League party that supported his candidacy for chief executive in 2011.

For Finmeccanica, the timing is particularly bad. Orsi spearheaded an aggressive restructuring plan to cut debt and streamline the company. Plans to sell down ^1 billion of assets last year foundered as the sale of power engineering group Ansaldo Energia stalled. The stock price suffered recently as hopes for a sale disappointed yet again, despite interest from Korea and from German engineering group Siemens.

The delay prompted Standard & Poor’s to cut the firm’s rating to below investment-grade in January. The risk is that Moody’s follows, pushing up Finmeccanica’s funding costs. Even before today’s news, the stock traded at a lowly 6.2 times estimated earnings in the next 12 months, Starmine data shows, a 45 per cent discount to the average forward PE of European rivals. On Tuesday, it fell a further six per cent.

The share-price drop reflects the risk that the political brouhaha causes further delays, or uncertainty over Finmeccanica’s strategy and direction. Although there has been little debate over the future of Finmeccanica in the electoral campaign, the transport commissioner from the centre-left party has backed calls from the CGIL union for the company to stop all asset sales.

Such a freeze would be a mistake. The state should not entrench its control over the company. It should sell it down.