There was a huge shake-up when the Chinese state-controlled collective known as ChemChina put in a massive $7.7 billion bid for the purchase of Italian tire giant Pirelli. While some people may be surprised by the idea of an Italian tire company being owned by the Chinese, there are a number of positives that can be seen here, including the chance for Pirelli to up their financial backing and compete with the likes of Michelin and Continental on a larger scale. But this part of the equation is still quite a ways away from formulating, and for now there is still a lot to consider before the buyout happens later this summer.
When Milan, Italy-based energy provider Cam Finanzaria (or Camfin for short) announced last Friday that it was in talks with an “international industrial partner” to sell its stake in Pirelli, shares rose to a 25-year high and closed at 15.23 euros. According to a report by The New York Times, “Camfin investors will continue to own as much as 49.9 percent of its capital” and Camfin’s owner Marco Tronchetti Provera will remain as acting chief executive of Pirelli, and during an official press release, Provera said that ChemChina’s “approach to business and strategic vision [will] guarantee Pirelli’s development and stability.”
Once this deal is complete, ChemChina plans to delist Pirelli and reorganize the company as they see fit before relisting it in four years’ time. The New York Times says the company will also attempt to merge Pirelli’s industrial side with the Fengshen Tires Stock Company, in the hopes of doubling its volume and further expanding Pirelli’s tread-marked footprint in Asia. The Times also added that as acting chief executive, “Mr. Tronchetti Provera will have the right to choose when to relist Pirelli.”
This kind of move is a very safe way of playing the merger game, since Italians and Pirelli fans around the world will still see the same man running the business, the same offices in Milan, and the same products rolling down streets and race tracks the world over. The only thing that is going to change is the company’s ownership and Pirelli’s presence in the Asian market. But there is more to this story than just one big buyout, for there are several powerful forces at work here; Pirelli just happens to be the most recognizable.
While on the surface it may look like Pirelli is working on expanding its Asian presence, ChemChina is looking at a larger stake in the European market while garnering access to what Autoblog calls a “guidebook on premium tire technologies.” After doing a bit of digging, we came across some interesting details as to why Camfin is so eager to sell to China in the first place.
According to a report by Bloomberg last year, Russian government-run Rosneft — the world’s biggest publicly traded oil producer by volume — will “rely on deals with China to withstand the latest U.S. sanctions against Russia.” Rosneft is now set to receive a direct share of Pirelli if this deal goes forward, meaning that the Italian tire company will be primarily owned by Chinese and Russian government subsidiaries.
There is also going to be a very selective order that this deal will follow, starting with the $1.9 billion buyout of CamFin’s stake in Pirelli, followed by the purchase of the remaining shares for 15 euros a pop. This is reportedly just a fraction under the “15.26-euro price where the stock last traded when the deal was announced.” And while it may sound fractional on a per-share basis, across millions of shares this adds up to being quite a lot of money.
This multi-billion dollar buyout is expected to take place over the summer, and as previously stated, Pirelli will continue to be based in Italy in order to keep more than just its Italian name. JPMorgan Chase has also reportedly agreed to provide financing for the acquisition, and according to Ren Jianxin, chairman of China National Chemical Corporation, “We are delighted with the opportunity to team up with Mr. Marco Tronchetti Provera and his team to continue to build together a world-class organization and a market leader in the global tire industry.”