China National Chemical Corporation (ChemChina) together with other investors will acquire a majority stake in Pirelli &C SPA for €7.1 billion ($7.7 billion).
A deal between ChemChina and Pirelli will be one of the largest overseas acquisitions by a state-owned Chinese company over the past few years. It will also give China the control over the one of the leading tire brands worldwide.
The shares of Pirelli climbed almost 2% to €15.51 per share around 5:13 P.M. CET in Italy on Monday.
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ChemChina will initially buy 26% stake in Pirelli
According to Wall Street Journal, China National Tire & Rubber, a unit of ChemChina will initially acquire 26% stake in Pirelli for approximately €1.8 billion ($1.9 billion).
Camfin, an investment vehicle indirectly controlled by Pirelli Chairman and CEO Marco Tronchetti Provera owns the 26% stake that will be purchased by the Chinese company.
ChemChina will set up a new investment vehicle to hold its 26% stake in Pirelli. China National Tire & Rubber will own a minimum of 50.1% of the new investment vehicle.
On the other hand, Camfin will reinvest a portion of the proceeds from the sale of its stake in Pirelli to the new investment vehicle. It has the right to keep as much as 49.9% stake if it makes an investment during the tender offer of the Italian tire company’s stock.
After acquiring Camfin’s stake, ChemChina will then offer to buy all of the remaining outstanding shares of Pirelli for €15 per share, which is below the closing price of stock at €15.23 per share on Friday.
Pirelli CEO Tronchetti Provera will remain CEO after the deal
Mr. Tronchetti Provera will remain as CEO of Pirelli after the acquisition, but he will no longer serve as chairman of the board. China National Tire & Rubber intends to appoint a new chairman.
Pirelli’s headquarters, as well as its research & development, will remain in Milan. ChemChina plans to relist the shares of Pirelli through an initial public offering in the fourth year following the closing of the transaction if it succeeds in delisting the stock.
According to Camfin, the deal will strengthen Pirelli’s presence in China. It will also increase its sales volume of industrial tires to approximately 12 million pieces annually. China National Tire & Rubber and Aeolus Tyre, a Shanghai-listed company, partially owned by ChemChina will integrate Pirelli’s industrial tire business to some of their assets.
In a note to investors, Natixis commented, “While a counterbid from Western tire makers is unlikely (anti-trust issues, limited strategic appeal), this deal is nonetheless set to considerably shake up the sector.”