China National Chemical Corp is to buy Pirelli, the world's fifth-largest tyre maker, in a €7.1 billion deal that will put the 143-year-old Italian company in Chinese hands.
The proposed deal is the latest in a series of takeovers made in Italy by cash-rich Chinese buyers, who can take advantage of a weak euro just as signs emerge that Europe is coming out of economic stagnation.
The offer will be launched at 15 euros per share, valuing the Italian group at €7.1bn excluding net debt of almost €1bn at the end of 2014. The ChemChina unit also envisages taking Pirelli private.
Shares in Pirelli rose as much as 3.5 per cent on Monday to €15.76 euros - above the offer price, with some traders pointing to expectations that ChemChina may have to lift its bid to win over shareholders.
"The success of the likely public offer at 15 euros cannot be taken for granted," Banca Akros said in a note.
But if successful the deal will give state-owned ChemChina, led by acquisitive chairman Ren Jianxin, access to technology to make premium tyres, which can be sold at higher margins, and give the Italian firm a boost in the huge Chinese market.
The bid for Pirelli marks a return of China's state-owned enterprises to global dealmaking following a hiatus caused by President Xi Jinping's anti-graft crackdown that targeted several current and former senior officials at state companies.
It would be China's fifth-biggest outbound deal by a state-owned firmand the first major acquisition since China's MMG Ltd led a consortium last year to buy the huge Las Bambas copper mine in Peru from Glencore.
Under the proposed deal ChemChina's tyre making unit, China National Tire & Rubber, will enter into a joint venture which will first buy the 26.2 per cent stake that Italian holding firm Camfin owns in Pirelli. The venture will then launch a mandatory takeover bid for the rest of Pirelli, the companies said in a statement.
The bid will be launched by a vehicle controlled by the Chinese state-owned group and part-owned by Camfin investors, who include Pirelli boss Marco Tronchetti Provera, Italian banks UniCredit and Intesa Sanpaolo, and Russia's Rosneft.
Rosneft bought a 50 per cent stake in Camfin a year ago, before the onset of the Russian economic crisis. The oil company will remain a Pirelli investor after the buyout but it is unclear at this stage what its final stake will be.
The new Chinese owners will pick a new chairman while Tronchetti Provera, who started working in the tyre maker in 1986 after marrying a member of the Italian family that founded the firm, will remain chief executive.
Italian press reports mentioned the possibility of a counterbid by a major European competitor like France's Michelin or Germany's Continental, which would also push the share price higher, although analysts were sceptical.
Camfin said Pirelli's less profitable truck and industrial tyre business would be folded into ChemChina's listed unit AEOLUS, allowing it to double its output.
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