Russian oil major, Rosneft has bought into Pirelli, taking control of 50% of the holding group controlling Pirelli and a 13% of the tiremaker itself. The purchase makes the Russian group the largest single shareholder in Pirelli. The deal is being characterized as a solidification of the company’s partnership with Rosneft in Russia, which is seen as an access route to the emerging market for the tiremaker. However, Pirelli’s share price had fallen 2.24% in response to the news (correct at time of publication).
Reuters reported that the Rosneft move “ended speculation of a possible bid for Pirelli that had lifted shares over the past few weeks.” Whatever it means from a strategic point of view it solidifies a marketing and commercial cooperation signed between Pirelli and Rosneft in December 2012.
There is also a fascinating international political background to the move. While Rosneft boss Igor Sechin, purportedly an ally of Russian premiere Vladimir Putin, is buying shares in Pirelli. Putin’s Russia is engaged in a political/territorial dispute with neighboring Ukraine and specifically with the region of Crimea. This in turn has interesting implications for the security of various investments. Especially with the U.S. government talking about sanctions on leading Russian figures.
“This is a strategic partnership – for Rosneft it is diversification of its own business, not just a portfolio investment,” said Andrey Polischuk, an analyst with Raiffeisenbank in Moscow. “For Pirelli it is also an opportunity to expand its business in Russia.”
Details of the deal
As a result of the deal, Rosneft will own 50% of a new holding company that will hold 26.2% of Pirelli. According to Reuters, the remaining 50% of the holding company will belong to “a financial group 80% owned by Nuove Partecipazioni, an investment vehicle belonging to Pirelli chairman and CEO Marco Tronchetti Provera.” The remaining 20% will be divided between Intesa Sanpaolo and UniCredit.
No further details have been released. And no values associated with the transaction have been published. However, a Reuters quoted “a source with direct knowledge of the deal,” which said “Rosneft would invest more than 500 million euros (US$696 million) in cash and would take on about 250 million euros of debt.”
It appears as if Rosneft’s distribution network will be an attractive feature of the two companies ongoing alliance as this could potentially give Pirelli expansion options in Russian.
Governance and ownership stabilization
What follows are the details of the move as contained in an official statement detailing the move issued by Nuove Partecipazioni. The final two paragraphs are particularly interesting as they suggest the stabilization of ownership and governance question that have surrounded the company recently. The solution the statement appears to suggest is that Marco Tronchetti remains in control of both this vehicle and Pirelli as “the chairman and CEO indicated by Nuove Partecipazioni, will have full powers over the day-to-day management of the company” for the duration of his current tenure (five years) at least.
“Unicredit (UC), Intesa Sanpaolo (ISP), Clessidra and Nuove Partecipazioni today [March 17, 2014] reached an outline agreement with Rosneft for an operation which entails, on the one hand, the exit of Unicredit, Intesa Sanpaolo and Clessidra from the existing partnership in Lauro61/Camfin and the simultaneous partial re-investment by Unicredit and Intesa Sanpaolo in a new partnership, through the constitution of a dedicated vehicle in which Rosneft would have 50% and the remaining 50% will be held by a [new company] composed of Nuove Partecipazioni with 80% and Unicredit and Intesa Sanpaolo with 10% each. This new partnership will hold the stake in Pirelli today in the possession of Lauro61/Camfin.
“The exit of Unicredit, Intesa Sanpaolo and Clessidra would take place at a value of 12 euro per share for the Pirelli stake. The operation, whose technicalities will be fully defined in the coming days, will be subject to the approval of the relevant company bodies of the various interested subjects and the eventual authorization of the relevant authorities.
“The agreement’s objective is to develop Pirell’s activities and business, also strengthening its commercial network in Russia thanks to Rosneft’s widespread presence across the territory. Rosneft, the world’s most important public company in the oil and gas sector, has since the end of 2012 established a number of commercial agreements with Pirelli, as well as in the area of research and development, in particular with regard to materials for the production of tires and synthetic rubber.
It is foreseen that Pirelli’s governance will remain unchanged and centered on the fundamental guiding role of the Board of Directors, in line with international best practices. All strategic matters, the definition of business plans and Pirelli’s budget will be submitted to the Board by the chairman and CEO, and require majority approval, as is already the case today. The chairman and CEO indicated by Nuove Partecipazioni, will have full powers over the day-to-day management of the company.
“Decisions relative to Pirelli’s extraordinary operations (capital increases, mergers and/or demergers) will be the object of consultations between the members of the new partnership and must be approved by them.” (Tyres & Accessories)
