Pirelli One of the First Stops on Chinese Buyout Plans in Italian...

Pirelli One of the First Stops on Chinese Buyout Plans in Italian Market

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The Chinese National Chemical Corporation or ChemChina announced two days ago that it will buy out Italian tyre company Pirelli (PECI.MI) for $7.7 billion (7.1 billion euros).

This should come as no surprise to those who’ve previously seen Terna, Snam and Ansaldo.

A banker with knowledge of the Pirelli said “”The Chinese have the capital, Italy has the brands, the products and the know-how, but no money.”

This is making it smarter for the Chinese to buy out corporations in Italy and take advantage of a weak euro just as Europe is trying to rise again from an economic inactivity.

The agreement was disclosed on March 23 and since then it has also surfaced that Pirelli’s industrial tire business are to be integrated with those of Fengshen Tires Stock Ltd. Co., (producer and co-owner of the Aeolus brand). The amalgamation would create business worth 12 million commerical and industrial tires, something that Pirelli on its own would not have been able to accomplish.

Since then, the ripples have been growing throughout the Italian market as to the future of the tyre industry as ChemChina plans on taking the company from Camfin and making it private. Camfin is looking to sell Pirelli shares at $16.25 a piece.

The Italians should fret not as Pirelli’s Italian management will stay on and the current arangement gives Italian investors a veto on some decisions about the company’s future. Although, at the end of the day, there is little doubt who will call the shots as the Chinese will be employing Tronchetti Provera as the chairman of the company.

With a spot on the Fortune 500 list, ChemChina, thereby, hopes to attain 26% of the shares while continuing to keep its eye on majority holdings at the company. The lack of swift move on ChemChina’s behalf is in large part its patience and dedication to smooth and thorough acquirement of Camfin’s Pirelli.

The future looks bright for ChemChina with its new acquisition as it hopes to increase profits in its annual sales which currently sit at $39.4 billion in 2013.

Camfin issued a statement on the 23rd that Pirelli is less profitable as a sole truck and industrial tire business, it would be better as consolidated with ChemChina’s AEOLUS. This should allow the company to double its output and gain more popularity in the tyre industry.

ChemChina is ranked 19 among the world’s top 100 chemical corporations with holdings in new chemical materials, basic chemical materials, and oil processing materials.

Pirelli, however, is not the only company being bought out by the Chinese. Ferretti, a luxury yacht company was bought out by the largest Chinese bulldozer-maker, the Shandong Heavy Industry Group-Weichai Group in 2012 valued at 1.7 billion dollars.

The Chinese don’t plan to stop anytime soon, with plans to take the most advantage of the fallen euro.

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Zac Berry is presently a full time editor at Market Morning. He covers the M&As and follows live market commentary. Before joining Markets Morning, Zac Berry worked with a start-up, where he worked in the capacity of a Team Leader tracking company events and results. Born in the U.A.E, he spent most of his growing up years in Dubai. Currently, he resides in U.S. and is pursuing his charter in Accountancy.

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