MILAN, Italy (March 24, 2015) — China National Chemical Corp.'s (ChemChina) agreement to buy a share of Pirelli & C. S.p.A. represents the foundation for a larger bid to acquire outright control of the Italian tire maker and take it private, according to documents released by Camfin S.p.A., the company holding the 26.2-percent share the ChemChina is acquiring.
The agreement, disclosed March 23, also calls for Pirelli's industrial tire business — medium truck, agricultural and industrial tires — to be integrated with those of Fengshen Tires Stock Ltd. Co., owner and producer of the Aeolus brand, Camfin said. The process would create a business with an annual capacity of about 12 million commercial/industrial tires.
ChemChina's deal with Camfin, to buy Camfin's Pirelli shares for 15 euros ($16.45) apiece, is the first in a multi-step process by ChemChina to gain majority control of Pirelli and then take it private, the Camfin documents disclose. ChinaChem will effect the deal through its China National Tire & Rubber Co. (CNRC) subsidiary.
CNRC's offer values Pirelli at $7.7 billion, based on the number of Pirelli's outstanding shares. Camfin and ChemChina/CNRC said they expect the transaction to be completed by this summer, after antitrust and other relevant authority approvals.
Camfin stressed in its statement that “continuity and autonomy of the Pirelli group's present managerial structure” is central to the agreement and that Marco Tronchetti Provera continues as Pirelli's CEO.
In a prepared statement, Mr. Tronchetti Provera called the partnership proposal a “great opportunity for Pirelli. CNRC's approach to business and strategic vision guarantee Pirelli's development and stability.”
CNRC will appoint Pirelli's chairman.
The 15 euros offer reflects a premium of approximately 28 percent over the average trading price of Pirelli's ordinary shares the past six months, Camfin said, and 18 percent over the three months before market closing on March 2.
According to the document, Camfin would take an undisclosed portion of the proceeds of CNRC's purchase of the Pirelli share and buy more Pirelli shares through a newly established Italian joint stock company — identified as “Bidco” — indirectly controlled by CNRC in partnership with Camfin through two additional newly established Italian joint stock companies — “Newco” and “Holdco.”
Newco, for example, “will be always controlled and consolidated by CNRC,” Camfin said. CNRC would control at least 50.1 percent of Newco, with Camfin owning the minority share.
Once established, Bidco will launch a “mandatory tender offer” for Pirelli's remaining ordinary shares and a “voluntary tender offer” for Pirelli's saving share capital, both at the same 15 euros-per-share offer.
Once a certain ownership stake is reached — reported widely in European media as 90 percent — Bidco will proceed with delisting Pirelli from the stock exchange.
Besides ChemChina/CNRC and Camfin, at least two other investment entities are expected to be involved in the new ownership structure: Coinv S.p.A. — a company indirectly controlled by Mr. Tronchetti Provera and with stakes held by Intesa Sanpaolo S.p.A. and UniCredit S.p.A. — and Long Term Investments Luxembourg S.A. (LTI), a private Russian investment company.
A delisted Pirelli will have a board of directors composed of 16 directors, eight of whom, including the chairman, would be appointed by CNRC and eight, including the CEO, would be appointed by Camfin and LTI, according to the Camfin document.
The transaction is to be inanced by the parties involved, with acquisition financing commitments underwritten by J.P. Morgan Chase & Co.
The deal comes to light as the euro's value against other major world currencies has dropped measurably. Its value vs. the U.S. dollar, for example, has dropped nearly 20 percent since last September.
It's expected that the new ownership group would keep Pirelli's headquarters and its “intellectual property foundation” in Italy, Camfin said, noting a “supermajority” vote of 90 percent of the shareholding would be required to authorize moving the headquarters and/or transferring Pirelli's know-how to third parties.
The Camfin document also outlines contingencies for the parties involved should a delisting not occur.
ChemChina/CNRC and Camfin did not spell out the scale of the projected industrial tire company that would result from integrating Fengshen Tires and Pirelli's commercial tire business, but separately Fengshen Tires/Aeolus reported sales of $1.4 billion in fiscal 2013 and Pirelli's commercial sector reported about $1.6 billion in sales last year.
Camfin said this industrial partnership is being formed to “boost the ongoing growth strategy of Pirelli. The partnership strengthens the group's presence in a strategic geographic area characterized by strong growth as well as giving birth to a global leader in the industrial tire segment.”