The iconic 143 year Old Italian tyre manufacturer, Pirelli is probably one of the most sought after tyre brands on the planet. It has always been a brand that has kept fighting off the competition from Japanese giants like Michelin and Bridgestone. No wonder then, Pirelli commands a high valuation in the market and if some company feels like buying a brand like Pirelli, it should have some very very deep pockets.
However, China and Chinese companies are known exactly known to be lacking money. So, here you go, news is coming in that China National Chemical Corp (ChemChina) is set to buy into tire-maker Pirelli, with what is currently a €7.1 billion deal. ChemChina had planned to offer €15/share to existing Pirelli stock owners, but that number may have to be lifted after a recent rally in the stock’s price. Once the deal concludes though, it is expected that ChemChina will take Pirelli private once the buyout is complete.
ChemChina is completely owned by the Chinese government, and it is present is diversified industries specializing in agrochemicals, rubber products, chemicals, industrial equipment, and petrochemical processing. The world’s fifth largest tire manufacturer Pirelli, with roughly a billion Euros of debt on its books. That, coupled with the currently weak euro, has made Pirelli an easy target for international corporate takeover.
It is expected that the new Chinese owners will pick a new chairman after the deal concludes, but current Chairman Tronchetti Provera will remain as Pirelli’s Chief Executive Office. Though there might come a few counter-offers from Michelin and Continental are expected, while some Italian houses might jump in with their own offers, to fight ChemChina's offer. Additionally, the increasing stock price of Pirelli could also scuttle the deal, as the market rate for the stock could supersede the price ceiling of ChemChina’s stock offer.