312 7 Chain Structures and Control
conglomerate with a wide range of businesses.^8 IFIL, the main industrial holding
company of the Agnelli Group, held stakes in other companies ranging from fi-
nancial services firms to Juventus, a football club.^9 The limited partnership on top
of the chain owned also Exor Group S.A. A privately-owned holding company in-
corporated in Luxembourg, Exor Group invested in other assets.
Fourth, high conglomerate discount caused by contributory legal risks means
that the risk of a hostile takeover bid is increased unless the firm employs effective
structural takeover defences in every company belonging to the chain. In the Ag-
nelli case, the entity highest up in the chain was a limited partnership with no
freely transferable shares, and external shareholders of the following companies in
the chain had no or virtually no voting rights. Furthermore, the Agnelli Group
controlled a relatively large amount of capital even in those companies, which
would have made it difficult to apply the break-through rule (sections 10.3.2 and
19.9).^10 Generally, the ultimate investor can be exposed to a high level of counter-
party commercial risk if it relies on shareholders’ agreements and the co-operation
of friendly shareholders for protection: If the conglomerate discount is high, it is
difficult for other shareholders to obtain a high price for their shares. The exis-
tence of a takeover bid can give a strong incentive to sell.
Fifth, there are other legal risks ranging from the application of tax laws to re-
striction on the use of inside information.
7.3.2 Companies Lower Down in the Chain
In addition to the legal constraints discussed above, companies lower down in the
chain can face other problems.
First, each limited-liability company is regarded as a separate legal entity. In
the legal sense, each legal entity may have interests of its own. There can be a
conflict between the legal duties of the company’s board members and managers
on one hand and the objectives of its controlling shareholder on the other (see
Volume I).
Second, investments in companies higher up the chain are high-risk invest-
ments. When a company higher up in the chain (company A) collapses, a com-
pany lower down in the chain (company B) will have a problem. B will lose the
(^8) Automobiles (Fiat, Lancia, Alfa Romeo, Abarth, Ferrari, Maserati and Fiat Light Com-
mercial); agricultural and construction equipment (Case and New Holland); trucks and
commercial vehicles, buses and special purpose vehicles (Iveco, Irisbus, Astra and
Magirus); components and production systems (Fiat Powertrain Technologies, Magneti
Marelli, Teksid and Comau); publishing and communications (La Stampa and Pub-
likompass); financial services and rental services to customers.
(^9) IFIL had stakes in Fiat S.p.A., Cushman & Wakefield Group (real estate services), Se-
quana Capital S.A. (paper), Intesa Sanpaolo S.p.A. (banking), SGS S.A. (verification,
inspection, control and certification activities), Gruppo Banca Leonardo S.p.A. (invest-
ment bank), Alpitour S.p.A. in which IFIL S.p.A. (tourism), and Juventus Football Club
S.p.A.
(^10) Article 11 of Directive 2004/25/EC (Directive on takeover bids).