At these prices, the Pirelli takeover bid will not have an easy path. This is the opinion that prevails in Piazza Affari following the announcement of the next takeover bid for Pirelli coming from Chem National China and from consortium former Camfin led by Marco Tronchetti Provera. The share, on the rise, immediately moved to fee 15,55 euros with a rise of 2 per abundant on quotations, already rising on Friday. Of course, the price is in line with the offer, if we take into account the dividend (0,32 last year on ordinary shares and 0,39 on savings shares) which will certainly be detached before the public offer.
But the prospects of the group, once the truck tires have been sold, deserve a more generous assessment: after the spin-off of the industrial division, according to a recent study of Equita, the “premium” Pirelli valued according to the multiples of its competitor Nokian could deserve a target price above 18 euros. Based on the opinion of brokers there are those who do not rule out a possible incoming counteroffer from a Big of the sector industry: Michelin, Continental or Bridgestone which he could take advantage of Victor Malacalza which boasts a package of 6,7% in charge at just under 7 euros.
But the predictable battle on the Stock Exchange shouldn't change the plans developed by that much Ren Jianxin, number one of China National Chemical (probable future president of Bicocca) and by Marco Tronchetti Provera, destined to remain at the helm of the group until 2021, when the group, after the almost obvious delisting, will have already returned to the list (in London and perhaps in Shanghai, less easy in Milan).
In summary, the operation includes a number of stages.
1) It was completed over the weekend sale of 26,75% Pirelli held by Camfin in Chem China for a value of 1,875 billion euro, including approximately 400 million in debt, with a valuation of 15 euro per share.
2) The former Camfin partners will reinvest the money collected (with considerable capital gains) in the vehicle companies which, once they have obtained the go-ahead from the Antitrust and the Chinese authorities, will launch the takeover bid on the Pirelli float. Both Tronchetti Provera and its Italian partners (the Rovati and Diaz-Pallavicini families, plus Intesa and Unicredit) and Rosneft will participate in the operation.
3) SPVs will invest a total of 7,4 billion for the entire capital of Pirelli which, at that point, will be withdrawn from the list. If the objective were not achieved, plan B would take effect. If the consortium has raised two-thirds of the capital plus one share, it will be able to precede the merger between the vehicle company and Pirelli and then proceed with the delisting.
4) At the end of the tender offer Chem China will have 65% but both Tronchetti and Rosneft have the option of increasing the stake from 35 to 49,9% of the newco. Russia's Rosneft is expected to control a stake that will fluctuate between 12,6% and 18%, depending on the size of its reinvestment.
5) At that point the industrial operation will take shape: Pirelli Truck, which deals with tires for trucks, agricultural and earthmoving machinery, will be merged with Aeolus, the subsidiary of China Chem listed on the Hong Kong Stock Exchange. Aeolus, which sounds like Feng Shen Lun tai in Chinese: lun tai are vehicle tires; feng is wind, shen is deity. Hence the name for international markets: Aeolus, the god of the winds from Greek mythology. Founded in 1965, it ranks 20th in terms of revenues among the major global tire manufacturers. Together with Pirelli Truck he will give life to a reality of 12 million tires a year. On paper, the combination is ideal: no market overlap, great technological contribution from the Italian partner, strong presence of the Chinese component on a rapidly expanding market. Aeolus will make a leap in the world rankings from n.28 to n.4. Chinese Pirelli will be the first shareholder of the Hong Kong-listed company.
6) After the takeover bid scheduled for next September, the reorganization of the new Pirelli will start, concentrated on the most profitable segments of the car and motorbike market thanks to the growing presence of premium tyres. This will be the company to which Marco Tronchetti Provera will devote his main efforts, with the aim of returning to the Stock Exchange after four years. What if that doesn't happen? In this case, according to the Camfin document, a put option will be triggered in favor of the Camfin and Rosneft shareholders who could thus repurchase the company. To guarantee the current balance, Tronchetti managed to include syndicate agreements in the company's statute: it is thus foreseen the obligation of 90% of the votes in the assembly in order to be able to transfer the headquarters or research in R&D from Italy.
So far the financial and industrial terms of a complex operation, conducted in almost absolute secrecy even if it directly involved the political buildings both in Rome (Premier Matteo Renzi was informed at the beginning of March) and in Beijing (Ren Jianxin , a former manager of the Youth League of the Chemical Industry is an intimate of Li Kequiang) and, last but not least, in Moscow (Igor Sechin is Vladimir Putin's right-hand man).
One has to ask, at this point, what is the final balance for Italy. It is worth reflecting on the reasons why Beijing has accelerated its investments in Italy, the second destination in the EU and fifth overall. For the Chinese, both entry into an EU country and the technological qualities of our companies count. On the Italian side, there is an acknowledgment that the global challenge requires more robust financial muscles and solid partnerships to face commercial challenges with the necessary hopes of success.
As a consequence, some important players are moving away from Italy, also on a political level: first Fiat Chrysler, now Pirelli have moved their center of gravity away from the peninsula, perhaps losing out in terms of power. But conquering otherwise unthinkable development horizons. With all due respect to those who complain about the absence of an "industrial policy" in which many profitable positions have thrived.
