Benettons must tread carefully on Atlantia

The Benetton name has become tarnished in Italy. The billionaire family has become synonymous with troubled infrastructure group Atlantia SpA, now facing serious financial repercussions over the tragic collapse of the Morandi road bridge in 2018. The episode starkly underscores how business is a complex social activity which depends on much more than legal contracts between its stakeholders.
The investigation into what caused a section of bridge to give way, claiming 43 lives, has yet to conclude. But Prime Minister Giuseppe Conte has told La Repubblica newspaper there was grave negligence by Atlantia subsidiary Autostrade per l’Italia. As punishment, the government has changed the law so it could revoke the road operator’s lucrative motorway concession and pay it significantly lower compensation than the existing contract would have allowed. For its part, Autostrade asserts that it has always met its obligations under the concession agreement, spending more on maintenance than it had originally committed to do.
Rome’s disregard for contractual obligations should not be seen as a symptom of capricious Italian politics. It’s plausible that other governments would have made similar moves faced with the same public uproar.
Indeed, the authorities might be justified in breaching the contract if that were necessary to prevent unpalatable outcomes. The terms say that Autostrade should be compensated for termination at the net present value (NPV) of the asset’s future cash flows. This is estimated by analysts to be about 20 billion euros or more. The penalty for gross negligence is 10%, implying a roughly 2 billion euros fine depending on where the NPV was agreed. The sight of Autostrade walking away with 90% of fair value if gross negligence were proven to have contributed to such an awful event would be intolerable.
True, there is scope to levy additional deductions for “damage suffered by grantor”. But the opportunity for legal wrangling over that number must be high. The new law solves this by setting the starting point for compensation at book value, which could be half the NPV and so prices in a massive damages claim from the outset.
There’s still scope for a negotiated resolution. The government’s priority should be to take any necessary enforcement action arising from the probe, and to ensure the motorway infrastructure is safe. It also needs
to incentivise good behaviour by concession holders.
As for Atlantia, it would be unwise to see its goal here as extracting a decent financial settlement, ridding itself of the concession and walking away. Short-term investors who have piled into the shares are probably betting that it has European law on its side and will do just that. The Benettons, whose large holding confers a sizeable stewardship responsibility, hopefully think differently.
The real challenge for Atlantia is to regain its license to operate in the broadest sense — rebuilding a lasting partnership between itself and the society in which it does business. Exiting the concession won’t achieve that.

—Bloomberg