THE iconic Italian Pirelli tire brand and its German Metzeler specialist motorcycle tire subsidiary are being purchased in a complex 8 billion dollar deal by the giant China National Chemical Corp (ChemChina).
ChemChina will become the majority owner of the world's fifth largest tire maker, with the 67 year old Marco Tronchetti Provera, one of Italy's best known business men, who married into the Pirelli founding family 30 years ago, staying on as Chief Executive for another 5 years.
ChemChina is a state-owned Chinese chemical company whose China National Tire and Rubber Co subsidiary would initially purchase the 26 percent stake in Pirelli held by CamFin, its current largest shareholder, for $1.9 billion.
The new owner, who would then seek to take over the remaining share of the 143 year old Italian company, securing control of Pirelli's intellectual property, manufacturing facilities and tire technology.
With initial bridging finance being provided by a consortium of Western banks headed up by JP Morgan, CamFin, which itself is 50 percent owned by Russian oil company Rosneft - whose President, Igor Sechin, is the subject of US government sanctions due to his close associations with Russian President Vladimir Putin.
Once the initial stage of the deal has passed regulatory hurdles by the summer (assuming it does), a mandatory tender offer for Pirelli's remaining share capital will be made at the same price that ChemChina is paying for CamFin's stake - representing a considerable premium over the recent average trading prices of the stock concerned.
Pirelli is the sole tire supplier to Formula 1, with sales exceeding €6 billion ($6.5 billion) and a sales network that covers more than 160 countries and regions.
Although Pirelli's Powersports industry tire operations are a small percentage of its overall business, the Pirelli brand is nonetheless a major player in the motorcycle tire market, not least because of its ownership of the German Metzeler brand.
ChemChina, which has a strong position as an industrial tire maker in China through four active subsidiaries, including Aeolus, has long been looking for overseas acquisitions. Its planned purchase of Pirelli will help it to grow its market share in premium consumer tires.
The sprawling Bejing based group has some 140,000 employees and nine listed business units whose shares trade on the Shanghai or Shenzen stock exchanges. Founded by Mr Ren Jianxin, who is known as one of China's "merger kings", ChinaChem had previously expressed interest in acquiring Ohio-based Cooper Tire and Rubber, owner of British manufacturer Avon Tyres, Metzeler's primary dominant rival for custom motorcycle tire market leadership.
According to the Financial Times "Cooper Tire was subsequently at the centre of a bitter dispute between Apollo Tyres of India, which proposed paying $2.5bn for the US company, and Chengshan Group, Cooper’s former China joint venture partner. Chengshan’s opposition scuppered what would have been the biggest ever US acquisition by an Indian company." Cooper Tire recently announced that it was embarking on a $200m common stock repurchase plan.
The ChinaChem-Pirelli deal has sent shockwaves around the global tire industry, and as this edition of AMD Magazine went to press, Pirelli CEO Marco Tronchetti Provera was firefighting rumours that Japanese giant Bridgestone was contemplating a rival bid.
Although he is adamant that this is the right deal at the right time for Pirelli, with other opportunities having been rejected, this not expected to be the last tire industry M&I action in the coming months and years. In response to this announcement established and aspiring players alike will be seeking to make sure that they are not left behind when this new outbreak of ownership, partnership and strategic alliance realignments is concluded.