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Editorial: Road to Pirelli takeover might prove to be bumpy

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The latest potential mega-deal in the tire industry has been hatched, but it will take some time for the full impact to play itself out.

The deal involves Pirelli, the world's No. 5 tire producer, and state-owned China National Chemical Corp. The first part of the deal has ChemChina—as the Chinese firm is known—buying the 26.2 percent share of Pirelli now owned by investment firm Cam Finanziaria S.p.A, or Camfin, for about $2 billion.

Eventually, ChemChina, owner of China National Tire & Rubber Co., wants to be the majority owner of the Italian tire maker and its iconic brand.

But that's putting the transaction in simple terms, though simple is hardly a term that describes everything that must fall in place for that to happen.

For starters, Camfin—Pirelli's current largest shareholder—is controlled by Marco Tronchetti Provera, who also happens to be Pirelli's chairman and CEO.

Analysts say odds are the initial transfer of ChemChina's share will win antitrust and regulatory approvals and may close this summer.

ChemChina then would launch a mandatory tender offer for the majority of Pirelli shares, and possibly take the tire firm private at that point. The Chinese firm said Tronchetti Provera would stay on as CEO—it would name its own chairman—and oversee the restructuring. Camfin also would keep a minority stake in Pirelli through re-investing part of its proceeds and partner with ChemChina in its bid.

There is a lot that would make sense out of such a partnership, particularly on the consumer tire side, according to one analyst. ChemChina, would get instant access to technology along with a top tier brand and access to original equipment customers around the globe.

Pirelli, conversely, would get a stronger partner in China. Its brand would be the combined firm's flagship, along with a stable of lower-tier brands to service the rest of the market.

But while many deals look great on paper, there's often a catch. Just ask Cooper Tire and Apollo about that.

Here, the problem, according to the analyst, may be in getting the necessary stake of Pirelli needed to take the Italian company private.

Another potential roadblock is the price that ChemChina has settled on. While it said the 15 Euros a share offer is a large premium over what Pirelli had been trading for in recent months, at the time the deal was announced the share price already had exceeded that number.

So if ChemChina is serious about its long-range plans, a larger offer may have to be forthcoming. Otherwise, the rest of the deal may never take off.