ChemChina to take the M&A road to success

Pirelli acquisition likely to bring about 'revolutionary' change to group's tire business, reports Li Xiang.

Ren Jianxin, chairman of China National Chemical Corp.[Photo/IC]

Being a long-term industrial investor rather than simply a financial investor is what Ren Jianxin, the 57-year-old chairman of China National Chemical Corp, has in mind when he does a deal overseas.

A case in point is ChemChina's bid to acquire Milan-based Pirelli &C. SpA, the world's fifth-largest tire producer. If the deal valued at 7.4 billion euros ($8.1 billion) goes ahead in its entirety, it will make the State-owned chemical giant a controlling shareholder, with a 65 percent stake in one of the oldest Italian industrial brands.

But bidding to become the majority owner of a company with a history of nearly 150 years can be stressful. Ren said that he is concerned about a potential hostile counterbid that could disrupt the long-term strategy of Pirelli.

"Excess liquidity is sloshing around the markets, and the cost of capital is low. I am concerned that an irrational competing bid would hurt Pirelli's long-term interests," he said in an interview over the weekend.

However, Marco Tronchetti Provera, chief executive of Pirelli, said that the company has not been contacted by any other potential bidder.

Another pressure for Ren is how he can maintain the legacy of Pirelli's brand value and corporate culture as well as its technological and management advantages in the tire industry.

"As a majority shareholder, I cannot afford any damage to the reputation of Pirelli," he said.

The solution Ren has offered is to maintain the autonomy of Pirelli. He will keep the existing management team, including Provera, in place.

Ren used the metaphor of Italian pasta and Malan Noodle, a restaurant chain owned by ChemChina to describe the relationship between Pirelli and his company.

"Pirelli will be Pirelli. The Italian nature of the company will not change, although we are the investor," he said.

In addition, Ren said there are no plans for job cuts. "We need more people so that we can expand output and increase our market share."

Pirelli's research and development center and its headquarters will remain in Italy.

Under the terms of the proposed transaction, a "super-majority" equal to 90 percent of the share capital could authorize a move by the headquarters and the transfer to third parties of Pirelli's intellectual property.