Shell Italia (a)

15 Pages Posted: 21 Oct 2008

See all articles by Thomas MacAvoy

Thomas MacAvoy

affiliation not provided to SSRN

Lynn Isabella

University of Virginia - Darden School of Business

Ted Forbes

affiliation not provided to SSRN

Robert E. Spekman

University of Virginia - Darden School of Business

Multiple version iconThere are 2 versions of this paper

Abstract

This case, together with the B case, examines the critical role played by alliance managers. Shell sought to reenter the Italian market through a joint venture with MontEdison. The series tells the story of that venture through the eyes of three very different managers who approached their jobs with different styles and goals.

Excerpt

UVA-OB-0586

SHELL ITALIA (A)

By December 1993, it had become increasingly clear to the top management of Shell Italia in Milan that their strategic alliance, MonteShell, had reached a watershed. MonteShell was a 50-50 joint venture between Edison S.p.A., the energy division of MontEdison, the Italian conglomerate, and Shell Italia, a wholly owned subsidiary of Royal Dutch/Shell Group, the Anglo/Dutch energy concern. Since its inception in 1987, the MonteShell alliance had overcome a number of difficulties. Although MonteShell had finally begun to turn a profit (see Exhibit 1 for financial data), a number of nagging issues, both internal and external to the alliance, complicated the situation.

MontEdison had recently been taken over by a consortium of banks. The previous owners of the company had been involved in a widely publicized corruption scandal that reached into the highest levels of the Italian government. Moreover, MontEdison was reeling from a crushing debt load and had announced in May that it could no longer service its obligations. In August 1993, the company had announced that an additional ITL243 billion loss would be added to an existing loss of ITL1.24 trillion. An acceptable workout plan was finalized by early December, with the Italian investment bank, Mediobanca, taking the lead role. MontEdison refinanced much of its debt and had agreed to embark on a program of rationalization and cost cutting. It was unclear to Shell what the new owners of their partner company would do with their 50% stake in MonteShell.

At the same time, the petroleum industry in Europe was experiencing significant pressure on margins as a result of overcapacity. It was estimated that European refineries had as much as 500,000 to 600,000 barrels per day of excess capacity. Moreover, industry statistics revealed that close to a quarter of Western Europe's 120 refineries had posted negative earnings before taxes in 1992. MonteShell, as a privately owned operation whose major business was retail petrol marketing, had to compete in this climate with the various state-owned Italian oil concerns.

Adding complexity was the impending replacement next March of Pieter DeVries, managing director (MD) of Shell Italia, who had been in country for the past three years. Royal Dutch/Shell had a long-standing policy of rotating its country managers into new assignments approximately every three years. DeVries had received his next posting, and his time in Italy was rapidly drawing to a close. The local Italian managers on both sides of the alliance, who were intimately concerned with the issues at hand, wondered what kind of manager should replace DeVries. One executive recalled that this change could be problematic:

. . .

Keywords: strategic alliance, alliance manager, joint venture, petroleum

Suggested Citation

MacAvoy, Thomas and Isabella, Lynn and Forbes, Ted and Spekman, Robert E., Shell Italia (a). Darden Case No. UVA-OB-0586, Available at SSRN: https://ssrn.com/abstract=910422

Thomas MacAvoy (Contact Author)

affiliation not provided to SSRN

Lynn Isabella

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4818 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/isabella.htm

Ted Forbes

affiliation not provided to SSRN

No Address Available

Robert E. Spekman

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4860 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/spekman.htm

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