State-owned China National Chemical Corp (ChemChina) announced plans Monday to acquire Italian tire manufacturer Pirelli in a US $7.7 billion deal (€7.1 billion /5.1 billion pounds), the latest in a string of takeovers in Europe by high-profile Chinese corporate.
The cash-rich Chinese companies are continuing with their overseas-buying spree to diversify operations, also taking advantage of a weak euro just as signs emerge that Europe is coming out of economic stagnation.
The deal will provide Beijing-based ChemChina access to technology to manufacture premium tyres, which can be sold at higher margins, and give the Italian firm a stimulus in the enormous Chinese market. Pirelli, famous for its Formula One car wheels, would have more bandwidth to compete against bigger competitors such as Michelin and Continental which are looking for growth in Asia.
Ruling out the financial sector, Italy is the second largest acquisition market for China in Europe. The bid for Pirelli would be China's fifth-largest outbound deal by state-owned enterprises with 10 deals completed since the beginning of 2014, according to Thomson Reuters data.
It is the first major acquisition since China's MMG led a consortium in 2014 to acquire the huge Las Bambas copper mine in Peru from Glencore.
The other Chinese acquisitions in Italy, the euro zone's third-biggest economy, include stakes in power grid firms Terna and Snam, luxury yacht maker Ferretti and turbine maker Ansaldo.
Under the deal, ChemChina's tyre making unit China National Tire & Rubber, will first purchase a 26.2% stake in Pirelli from Italian investment company Camfin, and will then launch a mandatory takeover bid for the remaining.
Subsequently, the company would make an offer to buy the remaining shares at about €15 a share, valuing the group at €7.1 billion excluding net debt of almost €1 billion at the end of 2014.
Camfin is 50% owned by Russian oil & gas giant Rosneft, and the rest by Pirelli chairman and CEO Marco Tronchetti Provera, Italian banks UniCredit and Intesa Sanpaolo.
As details of the agreement emerged on Friday, shares in Milan-listed Pirelli, which began business nearly 143 years ago manufacturing rubber products, rose to a 25-year high, a sign that traders predict an improved offer or a rival bid.
According to reports, the deal with the Chinese group will mean Rosneft, which is facing international sanctions because the Ukraine crisis and needs to reduce debt, cuts its stake in Pirelli.
Milan-based Pirelli is the world's fifth-largest tyre manufacturer. Worldwide, it has 19 manufacturing sites and is present in over 160 countries.