Pirelli S.p.A. plans to sell majority control of its energy and telecom cables businesses in the foreseeable future and refocus its resources on its tire business.
Pirelli didn't specify a timeline for divesting control of the cables businesses.
However, in releasing its third quarter results the company did say it will invest more than $475 million during the next three years to expand tire capacity in the U.S., Brazil, China, Germany, Romania and the United Kingdom.
Pirelli is working with its primary international financial institutions to determine fair market value for its cable operations before starting sale negotiations. It said the operations' ``international leadership in terms of market shares, technologies, profitability improvements and management quality'' have attracted the interest of institutional investors.
The cables businesses represent half of Pirelli's sales but less than a third of operating earnings, according to the company's nine-month financial results.
The company said the units are significant players in their markets and high cash-flow generators, and the firm plans to retain minority ownership in them.
For the nine months, Pirelli reported net income of $275 million compared with a loss in 2003 on 7.7-percent higher sales of $6.37 billion.
Regarding its tire capacity expansion plans, Pirelli said it will invest more than $130 million over three years to build a passenger tire plant in Romania. It also will spend nearly $100 million to expand capacity at two plants in Brazil and has budgeted $180 million for a proposed joint venture in China covering passenger and truck tires and steel cord.
The Romanian plant, designed primarily for performance passenger tires to meet growing demand from East European markets, will be built in Slatina, adjacent to a steel tire cord plant Pirelli is building there in a joint venture with Continental A.G.
Pirelli did not disclose size, capacity or employment projections for the tire plant, but earlier said the $49 million cord venture, Cord Romania S.r.l., will have annual output of 30,000 metric tons at full capacity in about three years, Pirelli said.
Pirelli already operates a power cables factory in Slatina.
In Brazil, Pirelli plans to expand its recently opened plant in Bahia and build a steel radial truck tire facility on its Gravatai passenger tire plant site.
In China, where Pirelli was active in the 1980s with turnkey technology projects for several Chinese tire companies, the company has agreed with Aeolus Tyre Co. Ltd. of Henan to create a joint venture for producing tires and steel cord at plants to be built in Henan Province.
The as-yet unnamed joint venture will start next year with radial truck tires, primarily for the Chinese and Southeast Asian markets, Pirelli said, and then venture into radial passenger tires and steel cord.
Aeolus Tyre-formerly known as Henan Tyre Co. Ltd.-is among the five largest tire makers in China and, with 2003 sales of $290.4 million, was ranked 26th among all tire companies worldwide.
``We have identified in Aeolus Tyre a high profile partner with all the necessary qualities to succeed in this joint venture,'' said Francesco Gori, general manager of Pirelli's Tyres Sector, in a prepared statement. ``Pirelli...intends to be among the key players at this time of strong growth of the radial tire business in China.''
``We believe Pirelli is the best possible foreign partner, either in terms of technology and international experience and in terms of brand recognition on the Chinese market,'' said Cao Chaoyang, chairman of Aeolus Tyre. ``We are confident that this partnership will offer us the opportunity to meet the increasing demand for radial tires in China.''
Radial tire production in China increased 28.5 percent in the first half of 2004 alone, making China the fastest growing tire market worldwide.
The venture's truck tire element will expand Pirelli's global capacity for such products by about a third, supplementing output from existing facilities in Italy, Turkey, Egypt and Brazil.
Pirelli did not disclose the projected capacities of the factories.
In addition, Pirelli said it is moving forward with adding MIRS automated tire capacity at plants in Germany, the U.S. and the United Kingdom. The added capacity will become operational during the first half of 2005.