JIAOZUO, China—Aeolus Tyre Co. Ltd. has agreed to buy China National Chemical Co.'s two truck and bus tire subsidiaries and a 10 percent stake in Pirelli Industrial, the Italian tire maker's commercial tire business unit that's being spun off.
At the same time, the deal—agreed to earlier this month—calls for Aeolus sell an 80 percent stake in its passenger car tire unit to the Italian tire company.
The truck tire aspect of the deal involves ChemChina's Double Happiness Tyre Industrial in Taiyuan, Shanxi Province, with 2.1 million unit annual capacity, and Qingdao Yellowsea Rubber in Qingdao, Shandong Province, with 1.2 million unit annual capacity.
The agreement, though, requires further internal and external approvals as well as patent-licensing agreements to be signed by Aeolus and Pirelli, according to an Aeolus statement.
All transactions will be settled in cash and Aeolus is projected to pay a difference of about $125 million, based on estimates of the targets' net asset value. The company's shares have resumed trading.
Aeolus' earlier plan also included the acquisition of a third ChemChina tire affiliate and the full stakes of Pirelli Industrial.
The original framework, constituting “major asset reorganization” for China-listed companies with assets involved accounting for more than 50 percent of Aeolus' total asset.
This requires more complicated procedures for regulatory approval, and the company was unable to form a plan within the pledged period, explained its statement.
“The company will start a series of cooperations with Pirelli in research, technology, management and product quality,” Aeolus said. “Aeolus will also benefit from synergic effects brought by global resources.”
Pirelli Industrial, the holding company of Pirelli's industrial tire units, is the market leader in Latin America for truck and agricultural tires and also a top player in Europe, the Middle East and Africa, with plants located in Brazil, Turkey and Egypt.
Last year the company produced 4.3 million truck tires and 350,000 agricultural tires, down by 7 and 8 percent, respectively, from 2014.
In 2015, Pirelli Industrial reported a $2.75 million net loss, due to delayed receivables from its Venezuela subsidiary, on $1.2 billion revenue.
Last year Double Happiness suffered a $7.5 million net loss on $174 million in sales; Yellow Sea reported an $8.5 million net loss on $99 million revenue.
Despite the deficit, the transactions would “help enhance scale effects and lower procurement costs through increased bargaining power,” Aeolus said. .
Aeolus' passenger tire unit reported a net loss last year of $10.1 million on sales of $76 million. The unit's annual capacity is listed as 5 million units
After selling the unit, “the company will be able to focus on the research and marketing for industrial tires,” the company said.