By Eric Sylvers
MILAN--China National Chemical Corp. and other investors are
making a bid for Pirelli & C. SpA that could value the Italian
tire manufacturer at around $7.7 billion--one of the largest
overseas acquisitions by a Chinese state firm in recent years.
The deal will give China, the largest auto market in the world,
control of one of the world's top tire brands and if the tender is
completed, the largest acquisition by a Chinese state firm since
oil giant Cnooc Ltd.'s $15 billion acquisition of Nexen Inc. in
2012, according to Dealogic data.
A unit of China National Chemical, known as ChemChina, will
initially pay about 1.8 billion euros ($1.9 billion) to buy a 26%
stake in Pirelli owned by Camfin, an investment vehicle indirectly
controlled by Pirelli Chief Executive and Chairman Marco Tronchetti
Provera. The Chinese company will then launch a bid to buy the rest
of Pirelli's outstanding stock at about EUR15 a share, slightly
below Friday's closing price. That would value the entire company
at around EUR7.1 billion.
China National Tire & Rubber Co., the ChemChina unit making
the acquisition, operates a range of businesses and is one of
China's largest tire makers. Gaining control of Pirelli--which
invested hundreds of millions of dollars in a large tire factory in
Yanzhou, China--will allow the Chinese state-owned company to
upgrade its technology and grow its market share at home. At the
same time, ChemChina could get greater access to the European
market while boosting global sales. Tire exports from China have
been a source of friction in U.S.-China trade negotiations.
The partnership will strengthen Pirelli's presence in China and
double the company's volume of industrial tires sold to about 12
million pieces a year, Camfin said in a statement. Pirelli's
industrial tire business will be integrated with some assets of
China National Tire & Rubber and Aeolus Tyre Co., a
Shanghai-listed company partially owned by ChemChina.
The acquisition is the latest in a line of Chinese investments
in Italy, with recent acquisitions by People's Bank of China
including stakes of about 2% in some of Italy's biggest and most
iconic companies, including Fiat Chrysler Automobiles SpA and oil
giant Eni SpA. The Pirelli investment is the first time since the
recent raft of acquisitions began that a Chinese company or entity
seeks to gain control of the Italian company it is investing
in.
China National Tire & Rubber will own a minimum of 50.1% of
a new investment vehicle set up to hold the 26% of Pirelli. Camfin
will reinvest a portion of its proceeds from the sale of its stake
in Pirelli back into the investment vehicle and has the right to
keep its stake at as much as 49.9% if it invests during the tender
offer for Pirelli's publicly traded shares. Rosneft, which
currently owns 50% of Camfin, will reinvest a portion of its
proceeds in the investment vehicle.
Mr. Tronchetti Provera will remain as Pirelli CEO, but will lose
his chairmanship with China National Tire & Rubber naming
somebody to that post.
Pirelli's headquarters will remain in Milan, as will the
company's research and development, which has become more key in
recent years as the manufacturer has focused on high-end tires that
have better margins. Ninety percent of Pirelli's share capital will
have to approve the move of the company's headquarters or the
transfer of any intellectual property to third parties.
If the delisting succeeds, the plan is to have Pirelli relisted
through an initial public offering in the fourth year following the
closing of the transaction, which is expected by September.
With Pirelli closing Friday at EUR15.23, investors currently
have no reason to tender their shares. Camfin said the EUR15 per
share offer price to be offered to shareholders is 28% higher than
the average over the past six months.
Pirelli has had a rocky recent past with several ownership
changes in the past four years. In 2012, Mr. Tronchetti Provera
mustered help from Italy's two largest banks to fend off an assault
from another investor. Rosneft, last year invested about EUR500
million for its 50% of Camfin.
Rick Carew contributed to this article.
Write to Eric Sylvers at eric.sylvers@wsj.com
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