Pirelli: the stock market believes the Chinese firm Sinochem will gradually withdraw

Czech billionaire Michal Strnad, owner of the arms manufacturer CSG, is reportedly in talks to acquire a minority stake in Pirelli & C. from Sinochem, the group’s largest shareholder with a 34 per cent stake. According to reports from Bloomberg, Strnad is said to be negotiating with the Chinese state-owned group to acquire a 14 per cent stake in Pirelli. Talks are still ongoing and, according to some reports, the sticking point is the price, with the Sinochem group keen to secure a premium over market valuations.

Strnad is the largest shareholder in the Czechoslovak Group, an arms manufacturer that owns the Fiocchi Munizioni and Armi Perazzi brands in Italia. The 33-year-old Czech entrepreneur controls around 85 per cent of the share capital of CSG, which is based in Prague and has a market capitalisation of 14 billion. CSG was listed on the Amsterdam stock exchange earlier this year with the largest initial public offering ever carried out by a company operating exclusively in the defence sector. The group had acquired a 70 per cent stake in the Italian company Fiocchi Munizioni in 2022 and purchased the remaining shares last year.

Talks regarding Pirelli – a deal still under negotiation and valued at around one billion – would, if finalised, leave the Sinochem Group with a 20 per cent stake in Pirelli. Such a reduction would represent a further step forward in the delicate diplomatic effort to limit Sinochem’s influence over the tyre manufacturer – a presence that could have hampered Pirelli’s development plans in the United States had Golden Power not intervened.

The Italian Government has limited Sinochem’s presence in Pirelli by intervening in the company’s governance and imposing restrictions on representation on the board of directors (only three directors without executive roles) and on the Chinese shareholder’s rights. These restrictions will remain in force for as long as the Chinese investor retains a stake of more than 9.99 per cent. In recent weeks, Pirelli has reorganised its board of directors and executive management, appointing the controlling shareholder, Marco Tronchetti Provera, as executive chairman, despite objections from the Chinese side.

Strnad’s entry would thus represent the first step towards that 10 per cent target, which would remove all government restrictions. All the more so as unconfirmed rumours suggest that the Czech billionaire Pavel Tykac is also interested. As for Sinochem, the main obstacle to finalising the deal is said to be regulatory approval from the State-Owned Assets Supervision and Administration Commission (SASAC), the government body that oversees Chinese state-owned enterprises.