Privatization, Employment and Employees

1. Privatization, Employment and Employees SessionV: Employee Participation in Privatization Transactions Policies and Performance: The Italian Experience Olimpia Cuomo Council of Experts, Italian Ministry of Economy Istanbul, 11th October 2002

2. Concerns and Objectives of Privatisations Concerns Results • Budget deficit and public debt high and rising • Inefficient structure of many publicly-owned Italian companies • Absence of clear regulatory framework over public utility sectors • Lack of a developed Italian capital market • Debt /GDP ratio reduced from 123% in ’94 to 109.8% in 2001 • Transformation of SOE into joint stock companies • Establishment of legislative frame work to promote efficiency and competition • Development of the Italian market; role of retail investors and employees

3. The Privatisation Programme - Key Accomplishments • Sellers Period Gross Amount (Euro bn) • Italian Treasury 1994-May 2002 67 • IRI Group July 1992-Dec 2000 30 • ENI group July1992-Dec 1998 4.1 • TotalJuly 1992 – May 2002 101.1

4. Structural Changes in the Italian Equity Market • Retail participation has consistently increased through privatization programme NUMBER OF RETAIL INVESTORS IN PRIVATISATION OFFERINGS 1,158,000 Finmeccanica June ‘00 1,500,000 Autostrade Dec '99 3,800,000 Enel Oct '99 Acea July '99 1,250,000 BMPS June '99 2,120,000 BNL Nov '98 1,600,000 AEM July '98 438,000 ENI 4 June '98 1,700,000 Telecom Italia Oct '97 2,100,000 ENI 3 June 97 830,450 ENI 2 Oct '96 383,000 ENI 1 Nov '95 190,000 INA June '94 420,000 BCI Mar '94 1,000,000 IMI Feb '94 375,000 Credito Italiano Dec '93 292,000 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 Privatisations directly managed by the Treasury

5. Employee Participation was Incentivised Treasury Objectives • Reinforce employee support to Privatization process • Improve labor relations • Reinforce employee’s sense of belonging and goodwilltowards privatized company • Encourage employee’s board representation • Achieve additional reliable demand of shares Incentives • Guaranteed minimum number of shares • Price discount • Bonus shares • Use of the TFR; Grant financing

6. Incentives to Employees ENI 3 TELECOM Banca ROMA ENI 4 BNL ENEL Additional Discount*vs retail 1% 1% 1% NO NO NO Underpricing** 13,65 6,5% NA 14,34% 17,32% 4,04% Bonus Shares 1/10 1/10 NO 1/10 1,1/10 1,1/20 Delivery B. Shares 12 months 12 months NO 12 months 12 months 12 months Grant Financing NO YES YES YES YES YES 70% 70% 70% 75% 100% 100% Using TFR * On the official price on the day before the set of OPV price ** Methodology for calculating underpricing also accounts for bonus share benefits and additional discounts vs. retail.

7. On Average 73% of Employees Applied for Shares… th 100 100% 90% 90 80% 80 70% 70 60% 60 50% 50 40% 40 30% 30 20% 20 10% 10 0% S.Paolo Imi TI BDR BNL ENI4 ENEL Number of Employees applying for shares Applying Employees/Potential Employees

8. …With a High Retention Rate Over Time

9. Case Study: Alitalia • The Combined Global Offering • In 1996 Alitalia started a restructuring plan which provided for significant cost reductions and strategic reorganisation • Within the implementation of Alitalia’s plan, in 1998 the Italian Government (which owned 85% of Alitalia’s share capital through its subsidiary IRI) decided to undertake a capital restructuring of the Company and start the privatisation process • The transaction (the “Global Offering”) involved three different share offerings: • Capital Increase via a rights offering • Employee Offering • Secondary Share Offering

10. Market Employees 14.9% 20.5% IRI 53.0% Market 26.5% IRI 85.1% Case Study: Alitalia (cont.) • Following the completion of the Global Offering in June 1998, the Italian Government decreased its holding in Alitalia from 85% to 53% • Market free float increased from approximately 15% to 27% while 20.5% of the company was controlled by Alitalia’s employees

11. Case Study: Alitalia • The Employee Offering • The Offering to employee was the result of the agreement (the “Labor Agreement”) with the unions and provided that employees accept a reduction in salary and higher productivity standard • Employee Share Ownership Scheme: • First ever in Italy of such large scale • 317 mn Shares (20.5% of Company’s share capital) attributed to Alitalia’s full time employees • The Company paid the purchase of such shares (offered to employees at nominal value as additional remuneration) through existing capital reserves accrued overtime • 3 years lock-up • 3 employee representatives on Board of Directors (out of a total of 17 representatives)

12. Case Study: Alitalia • Rationale of the Employees Participation • History of high strikes level and work stoppages with significant impact on Alitalia’s financials. In 1995 an aggregate of 33 labor actions grounded over 2,000 flights • Restructuring process in order to reduce the cost of personnel and restore profitability • Labor Agreement signed with eight employees unions provided for labor cost savings, improvements in employees productivity and equity ownership of between 20% and 30% • Employees participation to Alitalia’s Board of Directors has assured a more active role to personnel’s Representatives in the Company’s strategic decisions

13. Case Study: Alitalia (cont.) • Alitalia’s Experience • The participation of the employees was a significant event in the history of the Company • Alitalia as well as many national carriers has suffered from difficult market conditions mainly due to an overall strategic industry repositioning and external events which have been affecting air transport over recent years Positives Issues • Reduction of conflict between unions and management • Shared objectives and decisions • Reduction of labour cost • Negative impact on stock liquidity • Potential impact on stock price upon monetisation • Potential conflicting role at representatives level; Unions representative or Shareholders representative?

14. Conclusions • Development of employee share participation evident, but: • participation to financial results and in decision making processes still small • no direct impact on share price performance • EU Member States acknowledge importance of wider employee participation to enterprise results through: • profit sharing • share ownership • tax break

15. Conclusions • How to cope with a widespread employee share ownership? • The role of the European Union • A new framework to encourage employee equity participation • Necessity of linking decision-making and incentives, with value creation as the ultimate objective • Towards an “employee capitalism”?