Chinese industry has once again flexed its muscle.
24 Mar 2015 | 2631 Views | By Autocar Professional Bureau
Chinese industry has once again flexed its muscle. The China National Chemical Corporation (ChemChina) has announced that it is looking to acquire a controlling stake in Italian tyremaker Pirelli, in a euro 7.1 billion (Rs 54,272 crore) deal. This will put the 143-year-old company, which is the world’s fifth largest ...
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Chinese industry has once again flexed its muscle. The China National Chemical Corporation (ChemChina) has announced that it is looking to acquire a controlling stake in Italian tyremaker Pirelli, in a euro 7.1 billion (Rs 54,272 crore) deal. This will put the 143-year-old company, which is the world’s fifth largest tyre manufacturer, into Chinese ownership.
According to a media statement, ChemChina through its wholly owned subsidiary China National Tire & Rubber Co (CNRC) has entered into a pact with Camfin SpA (CF) of Italy to buy the latter’s 26.2 percent stake in Pirelli. Following the agreement, the operation and the management team of Pirelli will be kept stable, and new business growth strategy will be defined. The transaction is subject to approvals by the Chinese and foreign governmental authorities.
Pirelli, which produces car, motorcycle, truck, bus and agricultural tyres, had a sales revenue of euro 6.1 billion (Rs 46,628 crore) in 2013 and a sales network covering more than 160 countries, ranks first in the premium tyre segment worldwide, and is currently the sole tyre supplier to Formula 1 for the three-year period of 2014-2016. The tyremaker has 37,979 employees worldwide and currently operates 19 manufacturing plants in 13 continents. In 2013, its production capacity was approximately 69 million consumer tyres and 6.2 million industrial tyres.
For CNRC, which makes all-steel radials and off-the-road tyres and is the largest producer of auto brake hose and high strength conveyor belts in China, with exports to over 140 countries, acquiring Pirelli will give it new access to strategic geographical markets. Through integration, it will enable CNRC to double its volumes in the industrial tyre business.
Taking over Pirelli will give ChemChina considerable heft in the global tyre market, both consumer and industrial, given that the Italian tyremaker is well on course to expand its market share. Pirelli’s 2013-2017 strategic growth plan provides for:
- Growth in the business segments with the highest value: Premium: 60% of car revenues in 2016 (56% in 2013; 46% in 2011).
- More competitive offering in the medium segment: Focus on specialties and production cost reduction (process and platform standardization, production in low-cost countries).
- Keeping leadership of the industrial business in key markets (South America and MEA), business development in Europe – through a more competitive offering (100% of production is in low-cost facilities) – and in Asia Pacific – through partnerships.
- On-going innovation of products: 14 new lines of car products, 21 of Moto products and 11 of Truck products, by the end of 2017.
- Implementation of a new efficiency program: Euro 350 million (Rs 2,675 crore) between 2014 and 2017 (=1% of revenues each year).
- Selective investments in high-return projects: Euro 1.6 billion (Rs 12,230 crore) capex in the 2014-17 period (~5% of revenues in 2017, ~7% estimated for 2013, 11% in 2011).
On the R&D front, ChemChina will draw on Pirelli’s experience of over 40 years in the premium segment; leverage HQ in and 10 regional centres, 1400 engineers and numerous ‘open innovation’ projects with University research centres and carmakers; and global partnerships with prestigious carmakers to meet the more demanding requirements in terms of performance, safety and product customisation, all of which are key for the replacement market.
Commenting on the deal, Marco Tronchetti Provera, chairman and CEO of Pirelli, said that "the partnership with a global player like ChemChina, through its affiliates, represents a great opportunity for Pirelli. CNRC’s approach to business and strategic vision guarantee Pirelli’s development and stability."