China National Chemical Corporation has closed an agreement with Pirelli’s controlling shareholders over a €7.1bn takeover of the fifth largest tyre maker company in the world. Shareholders in Pirelli’s holding company, Camfin, include the Italian banks UniCredit and Intesa, as well as the Russian oil group Rosneft, along with Pirelli’s CEO, Mr. Tronchetti Provera.
The takeover process
The first step of the deal will consist of the CNCC acquiring the holding company Camfin, which owns 26.19 per cent of the shares in Pirelli for €15 per share. The second step will involve the current Camfin shareholders, alongside CNCC, creating a new holding company which would launch a takeover bid over the remaining 73.81 per cent for the same price at €15 per share .
The next stage would involve delisting the company for four years, during which time a major restructuring would be put in place in order to separate the industrial and the consumer side of the business. Lastly, the goal is to merge Pirelli’s industrial businesses with Aeolus, CNCC’s industrial division, which is already listed on the Hong Kong Stock Exchange, whilst listing the consumer side of the business separately on a stock exchange yet to be decided.
China National Chemical Corporation
CNCC, China’s largest chemical group, placed 276th in the latest Fortune 500 rankings, after only 4 years of entering the list, generates revenues of $40bn. The company is currently being administered by the Chinese State. Its executive, Mr. Ren, has been described as the “undisputed king of mergers and acquisitions”.
Pirelli is one of the largest tyre makers in the world, with yearly sales of €6bn . Pirelli is also the Formula One’s Official tyre supplier and has partnerships in place with Ferrari, Maserati, Lamborghini, Bentley, Audi, BMW and Mercedes.
Mr. Provera, the current CEO of Pirelli, has stated that “The agreement with CNCC represents a great opportunity for Pirelli, CNCC’s approach to business and strategic vision will ensure the development and stability of Pirelli.”
The deal allows Mr. Provera to maintain his degree of influence in the company by maintaining his position as a chief executive until 2021, which would not be the case if Pirelli were to merge with other rival companies.
The deal will allow Pirelli to enter the Chinese market and double its revenues. At the same time, CNCC will be able to move into Latin America and the United States by using Pirelli’s network as a launching platform. CNCC will also take advantage of Pirelli’s intellectual property rights and technology, which will allow them to create cheaper tyres.
Stuart Pearson, analyst at Exane BNP Paribas, claimed that the deal will trigger a “clear change in the industry’s structure”, and warns Pirelli’s rivals: “If I were Michelin, Conti or Goodyear, I would be terrified.” This is mainly because they are also looking into expanding in the Asian market.
There has been a series of recent acquisitions by other Chinese companies in Italy; including shares in Fiat Chrysler Automobiles, Mediobanca and Telecom Italia.