AKRON—That oft-used business cliche, "maximizing shareholder value," largely was behind the creation of Pirelli Tyre S.p.A., the new entity controlling all of Pirelli & C. S.p.A.´s tire assets, according to the firm´s CEO.
"Institutional investors aren´t much interested in diversified holdings anymore," said Francesco Gori in an interview before giving the keynote address at the recent Tire Society meeting in Akron. "We felt our tire business had numbers comparable with the best in the industry, but investors were shying away because of Pirelli´s diversified structure.
"The share price (for Pirelli & C.) did not reflect Pirelli Tyre´s growth or value," he said.
The initial public offering for the new company, however, flopped. Offered in early June, Pirelli & C. withdrew the shares a week later after interest in the stock at the offering price was weak.
"The negative market worked against us, and management did not want to discount the stock," Gori said. "There wasn´t that drastic a need for the parent company to do so."
With the IPO called off, Pirelli worked out a deal with a consortium of six banks to sell 39-percent control of Pirelli Tyre. That deal raised $950 million in capital for Pirelli and valued Pirelli Tyre at $2.4 billion.
For now the banks in the consortium have agreed to hold the stock until market conditions improve enough to support an IPO at a suitable price. Eventually Pirelli & C. will sell more shares in Pirelli Tyre, Gori said, but the parent will maintain majority control.
Looking to the future for Pirelli Tyre, Gori said in the short term the investment priority is China. Pirelli is spending $180 million in a three-year period to expand truck and install passenger tire capacity at its new Yanzhou Evolution Tyre Co. Ltd. joint venture in Yanzhou.
China will be the focus of Pirelli´s Asian strategy, Gori said, providing most of the tires needed to serve that region. The firm will use its European and Middle Eastern capacity mostly for its home markets.
The Asia/Pacific/Africa sector accounts for 13 percent of Pirelli Tyre´s global sales of $4.4 billion. The new venture is expected to contribute as much as $100 million in new sales this year.
Gori said the partnership with RoadOne Tyres to set up Yanzhou Evolution was Pirelli´s fourth attempt since 1993 at a manufacturing venture in China.
Other investment priorities are in the firm´s traditional high-yield areas-high-performance passenger and light truck tires and commercial vehicle tires.
In North America this means continuing to invest in the Modular Integrated Roboticized System production process at its Rome, Ga., plant, Gori said. Output from Rome represents about 10 percent of Pirelli´s unit sales and 20 percent of its total $410 million in sales in North America.