China National Chemical Corp (ChemChina) is set to buy into tire-maker Pirelli, with what is currently a €7.1 billion deal. The move would put the 143-year-old Italian company in Chinese ownership, with ChemChina being the majority and controlling shareholder.
ChemChina had planned to offer €15/share to existing Pirelli stock owners, but that number may have to be lifted after a recent rally in the stock’s price. Once the deal concludes though, it is expected that ChemChina will take Pirelli private once the buyout is complete.
The impetus for the buyout is that Pirelli’s knowledge making tires would be a huge asset to ChemChina’s current tire production, not to mention that Pirelli’s free production inventory could be used to make other ChemChina products.
The deal would also give Pirelli a strong footing in the massive Chinese tire market, a significant leg-up in Asia for the Italian brand over its other European competitors.
For those who don’t know, ChemChina is a company that is owned solely by the Chinese government, and it specializes in agrochemicals, rubber products, chemicals, industrial equipment, and petrochemical processing.
Pirelli is the world’s fifth largest tire manufacturer, with roughly a billion euros of debt on its books. That, coupled with the currently weak euro, has made Pirelli an easy target for international corporate takeover.
The structure of the buyout is fairly complex, and at the end of the deal it will likely leave several current Pirelli shareholders in minority positions, including Russian oil company Rosneft.
It is expected that the new Chinese owners will pick a new chairman after the deal concludes, but current Chairman Tronchetti Provera will remain as Pirelli’s Chief Executive Office.
It is worth pointing out that in some financial circles in Italy, counter-offers from Michelin and Continental are expected. Additionally, the increasing stock price of Pirelli could also scuttle the deal, as the market rate for the stock could supersede the price ceiling of ChemChina’s stock offer.