There goes the Pirelli calendar… Italian classic sold to private Chinese company for a cool $7.7 billion
A private Chinese company is in the process of taking over Italian tyre manufacturer Pirelli.
Reuters reports that the China National Chemical Corp. (ChemChina) will buy Pirelli, the world's fifth-largest tire maker, in a 7.1 billion euro ($7.7 billion) deal that will place one of the symbols of Italy's manufacturing industry in Chinese hands.
The deal will give state-owned ChemChina, led by acquisitive chairman Ren Jianxin, access to technology to make premium tires, which can be sold at higher margins, and give the Italian firm a boost in the huge Chinese market.
In turn Pirelli, whose tires equip cars in Formula One motor racing, would have more bandwidth to compete against larger rivals such as Michelin and Continental which are looking for growth in Asia.
The deal was agreed with Pirelli shareholders on Sunday. ChemChina agreed to pay 15 euros a share for the 26.2 percent of Pirelli owned by Cam Finanziaria, or Camfin, the companies said in a statement. ChemChina will then make a public tender offer for the rest of the tiremaker at the same price. The bid price, which values Pirelli at about 7.1 billion euros, is below Friday's closing price of 15.23 euros.
"The partnership with a global player like ChemChina, through its affiliates, represents a great opportunity for Pirelli," Chairman Marco Tronchetti Provera said in the statement. Provera, 67, who is a part-owner of Pirelli, will remain chief executive officer under the deal, while ChemChina will appoint a new chairman.
In 2013, ChemChina generated revenue of 244 billion yuan ($39 billion), according to its website. ChemChina will carry out the transaction by its subsidiary China National Tire & Rubber Co. The company expects the deal to close in summer 2015, depending on receiving regulatory approvals.
The deal is the latest in a string of takeovers in Italy by cash-rich Chinese buyers, who can take advantage of a weak euro just as signs emerge that Europe is coming out of economic stagnation.
The bid also marks a return of China's state-owned enterprises (SOEs) to global dealmaking following a hiatus prompted by President Xi Jinping's anti-graft crackdown that targeted several current and former senior SOE officials.
It would be China's fifth-biggest outbound deal by an SOE, according to Thomson Reuters data, and the first major acquisition since China's MMG led a consortium last year to buy the huge Las Bambas copper mine in Peru from Glencore.
The bid will be launched by a vehicle controlled by the Chinese state-owned group and part-owned by Camfin investors, who include Provera, along with Italian banks UniCredit and Intesa Sanpaolo, and Russia's Rosneft, Camfin said in a statement.
ChemChina envisages taking Pirelli private. Pirelli will keep its headquarters in Italy and may be re-listed in four years.
Sources close to the matter said on Friday the deal with the Chinese group will mean Rosneft, which is facing international sanctions due to the Ukraine crisis and needs to cut debt, reduces its stake in Pirelli.
Camfin said on Sunday that Pirelli's less profitable truck and industrial tire business would be folded into ChemChina's listed unit AEOLUS, allowing it to double its output.
"We are pleased to have this opportunity working with Tronchetti and his team and continue to build together a world-class entity and a market leader in the global tire business," ChemChina said in a statement.
Previous Chinese acquisitions in Italy, the euro zone's third-largest economy, include stakes in power grid firms Terna and Snam, turbine maker Ansaldo and luxury yacht maker Ferretti.
Excluding the financial sector, Italy is the second-biggest acquisition market for China in Europe and fifth-largest worldwide, with 10 deals completed since the start of 2014, according to Thomson Reuters data.
Pirelli was founded in Milan in 1872 by Giovanni Battista Pirelli. Over the next century, it expanded into cables, telecommunications and real estate.
In 2001 under Tronchetti Provera, Pirelli engineered a takeover of Italy's biggest phone company, Telecom Italia. That holding was sold in 2007 to return Pirelli's focus to tires on the so-called premium segment, including tires for Formula 1 race cars.
Earnings before interest and taxes rose 6.8 percent to 838 million euros last year, with revenue of 6 billion euros.