January 10, 2020 / 11:03 AM / 7 months ago

Breakingviews - Benettons play risky game of chicken in road row

People hold a banner as they demonstrate during ceremonies marking the first anniversary of the collapse of a motorway Morandi Bridge that killed 43 people in Genoa, Italy, August 14, 2019.

MILAN (Reuters Breakingviews) - The Benettons are playing a risky game of chicken with Rome. Atlantia, 30%-owned by the sweater-to-infrastructure dynasty, is haggling with the government over compensation for the collapse of a bridge in 2018. The dispute could lead to the loss of Atlantia’s lucrative concession to run Italy’s motorways. A deal, however, looks just about manageable for the 18 billion euro group.

Over a year after the bridge tragedy in Genoa, the government and Atlantia, which controls the company that runs 3,000 kilometers of Italian highway, are still at loggerheads. Rome wants Atlantia to lower toll fees and, to turn up the heat, last month passed a decree that could make it easier to pull the license and curtail compensation. The move prompted both Moody’s and Fitch to cut Atlantia’s credit ratings, now below investment grade.

The anti-establishment Five Star Movement, the main party in the shaky government coalition, blames Atlantia for failure to maintain the bridge, and wants to revoke the license. But that could tip its Autostrade per l’Italia (ASPI) motorway unit into bankruptcy, imperiling 7,000 jobs. That’s an unpalatable option for the government while carrier Alitalia and steelmaker Ilva are also at risk.

The Benettons could play for time. The coalition is weak and may not last.  A new government, likely led by the League, may be more lenient. However, that would be a risky gamble, and an escalation of the conflict would further spook investors. Atlantia shares have fallen nearly 15% from the level before the tragedy.

A deal probably wouldn’t do much more damage to Atlantia shareholders. A 5% cut in toll fees, which the government wants according to newspaper MF, would knock around 185 million euros off ASPI’s estimated toll revenue this year, according to Breakingviews calculations. Assuming a similar decline in EBITDA, and Atlantia’s enterprise value would decline by perhaps 2 billion euros, given that infrastructure groups trade at about 10 times EBITDA. The damage could be higher after factoring in the effect of inflation and traffic increases. But Atlantia’s market capitalisation has already fallen by about 3 billion euros since the bridge collapse, which is probably a reasonable estimate of the potential loss. The Benettons can afford to end this sorry saga.


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