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En Englais: Chinese firm buying 26% stake in Pirelli

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MILAN, Italy—State-controlled China National Chemical Corp. (ChemChina), parent of China National Tire & Rubber Co. and other rubber industry holdings, has struck a deal to buy a 26.2-percent share in Pirelli & C. S.p.A. as the first step toward outright control of the world’s No. 5 tire maker.

ChemChina’s agreement to buy a stake in Pirelli via Camfin S.p.A., an investment firm controlled by the family of Pirelli CEO Marco Tron­chetti Provera, represents the foundation for a larger bid to acquire the Italian tire maker and take it private, according to documents released by Camfin.

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 to buy Cam­fin’s Pirelli shares for 15 euros ($16.45) apiece values Pirelli at $7.7 billion, based on the number of Pirelli’s outstanding shares. ChemChina will effect the deal through its China National Tire (CNRC) subsidiary.

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 Mr. Tronchetti Provera will continue 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.”

ChemChina Chairman Jianxin Ren said the company is “delighted with the opportunity to team up with Marco Tronchetti Provera and his team to continue to build together a world-class organization and a market leader in the global tire industry.”

CNRC will appoint Pirelli’s chairman under the new ownership structure.

The 15 euro 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.

Pirelli’s shares were trading at greater than 15 euros a share in the days following the March 23 announcement.

According to the Camfin document, the firm 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, who would be appointed by Camfin and LTI, according to the Camfin document.

The transaction is to be financed 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.”

Chem-China logo

ChemChina is a China state-owned enterprise under the administration of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), which was established in May 2004 with the approval of the State Council.

With annual sales of $39.4 billion in 2013, ChemChina is considered China’s largest chemical company and 19th among the world’s top 100 chemical corporations. It is ranked by Fortune magazine on its Fortune 500 list.

ChemChina is active in six sectors: new chemical materials; basic chemical materials; oil processing; agrochemicals; rubber products; and chemical equipment, according to ChemChina’s website.

China National Tire & Rubber describes itself as China’s largest producer of OTR tires, controlling the brand names Aeolus, Double Happiness, Rubber Six, Torch and 7425, and a leading producer of rubber conveyor belt, auto rubber hose and air conditioner hose. It lists assets of $2.4 billion.

Among its tire industry holdings are Aeolus Tire Ltd., ChemChina Guilin Tire Co., Ltd., Double Happiness Tire Industrial Co. Ltd. and Qingdao Yellowsea Rubber Co. Ltd.

In a mission statement on China National Chemical Corp.’s website, Mr. Jianxin Ren says, in part, that “since its founding, ChemChina has kept a leading position in China’s chemical industry with its high-quality products and services.

“Meanwhile, we actively keep track of global trends and changes and look for partners from throughout the world,” the chairman continues. “By 2020, ChemChina will form a ‘3+1’ industrial pattern, including material science, life science and environmental science, and aim to become a group with strong international competitiveness.

He also notes that, “in the pursuit of growing our business, we have been exploring sustainable development and making a positive commitment to social responsibility.

“In 2008, ChemChina was the first company in China to propose a ‘Zero-discharge’ management strategy.

“We lead by example to promote energy-saving business practices, and have made a commitment to pro­viding environment-friendly products to all our customers.”

To reach this reporter: bdavis@ crain.com; 330-865-6145; Twitter: @reifenmensch

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