A Stormy Engagement

The negotiations between the two giants had been going on secretly for five months, but the news was finally broken last week by Italy's Communist paper L'Unit`a. The news: Royal Dutch/Shell has offered to buy half interest in two new petrochemical plants of Italy's Montecatini mineral and chemical complex, for a price somewhere between $150 million and $300 million. L'Unit`a's shrill attack on the proposed sale--which is still very much in the negotiating stage--was quickly picked up by left-wingers in Parliament, and it soon seemed to the casual reader that all Italy was threatened with domination by "foreign monopolies and cartels." Ignored in the outburst was the real reason that Montecatini wants to sell: it has overextended itself and badly needs cash.

Slender Markets. Montecatini has been a dazzling postwar success story, rising from war-torn rubble to branch into chemicals, plastics, fertilizers, paints and synthetic fibers and to set up plants in the U.S., Spain and The Netherlands. But like so many other European companies in the postwar period, its growth has been financed by perilous means. With not nearly enough loan money available in Europe's slender capital markets, many firms have tried to finance their rapid expansion with short-term borrowings. Montecatini has been borrowing Eurodollars--U.S. currency that circulates freely among European banks and industry without being repatriated to the U.S. But because of the great demand for Eurodollars, which have become almost a separate international currency for short-term loans, such loans are now harder to get.

When Montecatini was hit by rising labor costs (up 16.6% last year) and stiff competition from U.S. and other European chemical makers, its profits fell from $23.9 million to $21.6 million in 1962 despite a sales rise of 6.6%. The company was hard pressed to pay its debts and, to make matters worse, the cost of building its new petrochemical plant at Brindisi on Italy's heel overran its $160 million estimate by almost 50%. The setback was enough to topple fast-running Managing Director Piero Giustiniani, the driving force behind Montecatini's expansion, and leave full command in the hands of the more conservative chairman, Count Carlo Faina, 69. Faina, a papal count who claims direct descent from Napoleon, guided Montecatini in the early postwar years, but had turned technical direction over to Giustiniani. After failing to raise more capital in Italy, Faina began negotiations with Shell to buy half of the Brindisi plant and another plant at Ferrara.

Nobel Plastic. Already associated with Montecatini in marketing pesticides in Italy and making plastics in The Netherlands, Shell is anxious to get in on the promising petrochemical industry in Italy. For one thing, Shell wants to make sure that all the Italian petrochemical business does not eventually go to E.N.I., the state oil and gas monopoly that the big oil companies heartily dislike. In Montecatini, Shell will also have a good Italian outlet for its own crude oil.

Aside from wanting Shell's capital, Faina hopes to get rid of such unprofitable divisions as Montecatini's mining operations, expand the company's aluminum operations and concentrate more on producing its plastic discovery, polypropylene, which a fortnight ago won a Nobel prize for Chemist Giulio Natta. The first commercial use of polypropylene, made in Italy under the brand name Moplen, enables Montecatini to manufacture plastic materials that are tougher and more heat resistant than any so far produced. The plastic can be dyed any color and be made to float, is already widely used to make buckets, tubs, basins and other domestic articles. Faina hopes that it will help make Montecatini's petrochemical operation highly profitable, is even thinking of using it to manufacture auto bodies.

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