MILAN, Italy—China National Chemical Corp. is preparing a bid to become the majority owner of the world's fifth-largest tire manufacturer.
ChemChina's wholly owned subsidiary China National Tire & Rubber Co. (CNRC) has entered an agreement with Cam Finanziaria S.p.A. (Camfin) to purchase the investment firm's 26.2 percent stake in Pirelli & C. S.p.A., which was ranked No. 5 in Rubber & Plastics News' 2014 Global Tire Report with about $8 billion in 2013 sales. Pirelli reported a slight decrease in sales for 2014, to $7.98 billion.
The two firms disclosed the agreement on March 23 at a price of 15 Euros per share, which at the time converted to about $16.25 and values Pirelli at about $7.7 billion based on about 475.7 million outstanding shares. Camfin's 26.2 percent stake would amount to about $2 billion, with a 50.1 percent share at about $3.86 billion.
Camfin currently is Pirelli's largest individual shareholder and is controlled by the tire maker's Chairman and CEO Marco Tronchetti Provera. The transaction is pending antitrust and other relevant authority approvals, and the firms expect completion by the end of summer 2015.
From there, ChemChina is preparing to launch a mandatory tender offer for a majority share of the Italy-based tire maker and potentially take it private to facilitate restructuring. To do so, the state-owned Chinese firm would need to secure at least two thirds of Pirelli's shares following a public tender offer, which is expected to start after the summer at the same price of 15 Euros per share.
Camfin said part of the agreement calls for ChemChina to integrate Pirelli's industrial tire business—which includes its truck, agricultural and industrial units—into the Chinese firm's Fengshen Tires Stock Ltd. Co. subsidiary, which produces the Aeolus brand. That would create a business with an annual capacity of about 12 million commercial/industrial tires, which Camfin said is double Pirelli's current output.
Neither firm released financial data on the projected industrial tire company, but CNRC's Aeolus subsidiary reported sales of $1.4 billion in fiscal 2013—ranking it 26th on RPN's 2014 Global Tire Report—while Pirelli's industrial unit accounted for about $2.06 billion in 2013 sales and about $1.86 billion in 2014.
“In the industrial sector, the partnership signed today will allow us to immediately double volumes through integration with some of ChemChina's assets, creating one of the world's top operators in the sector and ensuring for this business and all those who work in it a very strong competitive position,” Tronchetti Provera said in statements addressing Pirelli employees regarding the transaction. A company spokeswoman provided Tronchetti Provera's statements via email.