Tyre industry: ChemChina to buy Pirelli for $7.7 billion

Entity’s share price rose 5% over dividend payout rumours.

MILAN: The China National Chemical Corp (ChemChina) is to buy into Pirelli, the world’s fifth-largest tyre maker, in a €7.1-billion ($7.7 billion) deal that will put the 143-year-old Italian company in Chinese hands.

The deal, agreed with Pirelli’s top shareholders, is the latest in a series of takeovers in Italy by cash-rich Chinese buyers taking advantage of a weak euro just as Europe is slowly emerging from economic stagnation.

The offer will be launched at €15 per share, valuing the Italian company at €7.1 billion excluding net debt of almost €1 billion at the end of 2014. ChemChina’s tyre-making division envisages taking Pirelli private. Shares in Pirelli, which hit a 25-year high last week, rose 5% above the offer price on Monday on expectations of a dividend payout before the deal is closed.

If successful, the deal will create a global leader with a market share of 10%, according to Swiss bank UBS. It also represents the sale of another of Italy’s industrial icons, after a string of deals in recent years in sectors from fashion to food to engineering to energy, as decades of stagnation have eroded the country’s economic base.

“The sale of a prised piece of our industrial system like Pirelli to foreign buyers would not be a drama in itself if Italian capitalism were able to face up to international competition and the government had an industrial policy,” said the head of Italy’s biggest union, Susanna Camusso. The deal will give state-owned ChemChina, led by acquisitive Chairman Ren Jianxin, access to technology to make premium tyres which can be sold at higher margins and give the Italian firm a boost in the huge Chinese market.

The bid for Pirelli marks a return of China’s state-owned enterprises to global deal-making, following a hiatus caused by President Xi Jinping’s anti-graft crackdown that targeted several current and former senior officials at state companies.

Italian Prime Minister Matteo Renzi has been uncharacteristically silent about the deal but his government has made no protectionist noises about ChemChina. Under the deal, ChemChina’s tyre making division, China National Tire and Rubber, will first enter into a joint venture which will buy the 26.2% stake Italian holding firm Camfin owns in Pirelli. 

Published in The Express Tribune, March  25^th,  2015.

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