The alliance with chinese partner brings the high-level tyre company a global outlook. Is amongst the most prestigious brands worldwide, and it will have a broad market and a bigger productive capacity
After 25 years at the helm of Pirelli, a few weeks ago Marco Tronchetti Provera squared the circle as he completed a move for the future of his group that is unprecedented in Italian industrial history in business and financial terms. By teaming up with China’s ChemChina, he has found not only the global industrial partner that Pirelli needed, but also an additional, enormous market opening, especially for its Industrial segment.
Furthermore, Pirelli – which is a leading provider of Formula 1 tyres and one of the most prestigious brands in the world – will be able to count on huge production capacity in China. These are all results that it would not have been able to achieve even in ten successful years by relying on organic growth alone. What’s more, it has pulled them off without sacrificing the Italian roots of the headquarters and research facilities: in accordance with the bylaws, the HQ and the R&D department may only be moved if more than 90% of the shareholders give their approval in a vote in the shareholders’ meeting. Nor will there be any changes on the governance front: for the next five years, all management-related matters will remain in the hands of Tronchetti Provera, who will also have the right to choose his successor as the head of Pirelli. Tronchetti Provera has offered assurance that he has already started the search for the ideal candidate. He believes that the greatest form of satisfaction for a businessman is to witness ongoing growth at his company after his departure.
The negotiations with the company’s new Chinese partner were complex (the first contact between the parties came three years ago) but always above-board and there is every reason to believe that it will prove an exceptional match, because the interests and capabilities of the two groups complement each other nicely. This is despite the intricacies – expertly managed by Tronchetti Provera – of negotiating ChemChina’s addition to an international group that already included Russia’s Rosneft among its shareholders.
Numerous investment banks had dossiers about the prized tyre manufacturer, but the new structure means that Pirelli is now protected from hostile takeovers. It will also enable it to make the most of its innovative abilities and return to the stock market within four years, with Tronchetti Provera intending to complete the process comfortably within this time frame. From a financial point of view, in its new form Pirelli expects to see further improvements to the current EBIT margin of 16% in its Consumer segment and annual cash generation capacity of approximately €400 mn. Meanwhile, the group is taking measures to reduce the impact on its overall interests of the South American market, which is currently going through some hard times.
The slowdown (in relative terms) in the Chinese economy does not worry Tronchetti Provera or his partners because ChemChina’s revenues are already based on a good balance between domestic and external demand. Tronchetti Provera and his executives and partners are focusing on the opportunities opened up by new technology for products like tyres, which have a deceptively mature image. In a modern car such as a Tesla, there are around 1,500 sensors for all sorts of aspects, including pressure, wear and soon even the contact between a tyre and the ground. It is a whole new world just waiting to be explored so that its full value can be realized.