Italy and China are vying for control of Italian tire maker Pirelli

The Italian government is concerned that Pirelli, which was bought out by ChemChina back in 2015, could eventually end up under full Chinese control. The authorities’ fears are so great that they are even ready to cancel the deal, which was concluded eight years ago, a measure that could set a dangerous precedent from a legal point of view and seriously undermine relations between the two countries.

In 2015, China National Tire & Rubber Co. Ltd (CNRC, a subsidiary of ChemChina) acquired controlling stake in the Italian tire manufacturer Pirelli. Many Italian politicians and investors opposed the deal, fearing that Pirelli’s technology would be at the disposal of Beijing. But the tycoon and then owner of the company, Marco Tronchetti Provera, supported the deal in every possible way. Eight years later, his opinion of Chinese investors turned out to be very different.

‘Chinese are dangerous and Pirelli is in danger’, sources say Financial TimesIt is with this message that Mr. Tronchetti Provera intends to address the representatives of the Italian government today.

Over the years, not only the position of the Pirelli CEO has changed. ChemChina itself, for example, is now part of the state holding Sinochem. And Ren Jianxing, with whom Mr. Tronchetti Provera made a deal and who called the Italian his “teacher, elder brother and friend,” has long since left his position. He was first replaced by Frank Ning, who suited both European and Chinese investors. However, in 2021, he also resigned, and Li Fanrong, a direct protege of the Chinese Communist Party with a long track record in several state-owned oil companies and in the country’s National Energy Administration, became the new chairman of the board of Sinochem.

The Chinese authorities began to interfere more and more noticeably in the management of Pirelli. For example, in September last year, Sinochem’s assistant CEO sent a letter to Pirelli management advising Beijing to inform Beijing in advance of any meeting of company executives with foreign government and diplomatic officials, including those who have already retired and Italians. It also stated that any corporate event or visit involving Italian or foreign officials must be organized directly by Beijing.

Last November, Sinochem’s party committee called on all the holding’s companies, including Pirelli’s Chinese subsidiaries, to abide by the principles aimed at “full implementation of Xi Jinping’s three-year action plan for the speedy implementation of the modern Chinese business system in companies controlled by Sinochem.” It also said that the heads of the Chinese divisions of Pirelli are required to coordinate all important business management decisions with the party committees.

Finally, at the upcoming Pirelli shareholder meeting on July 31, Giorgio Bruno, a longtime deputy to Tronchetti Provera, should become the new CEO of the Italian company.

Under the terms of the old shareholder agreement, the incumbent CEO has the right to choose his successor himself. However, it was Sinochem who was appointed to the Pirelli Board of Directors by Mr. Bruno.

In March, the Chinese company notified about the revision of the terms of the agreement of shareholders. And under the new conditions, Sinochem will have the right to appoint nine members of the board of directors instead of eight, and the structure of Mr. Tronchetti Provera will have only three instead of the current four. Moreover, the Pirelli management has already notified the Italian authorities that Sinochem itself may appoint a successor to Mr. Bruno in the future.

The increase in Chinese control over Pirelli caused extreme discontent of the Italian government and Giorgi Meloni personally. Now the Italian authorities are considering various options for how they can reduce the influence of China and its ruling party in the iconic Italian business.

One possible solution would be to investigate the terms of the ChemChina deal, which could either be used to impose restrictions on Sinochem’s stake in Pirelli, voting rights or board appointments.

An extreme option could be to recognize the 2015 deal as illegal, FT sources say. After all, then the Italian authorities did not conduct any checks at all, and the transaction was completed with the approval of minority shareholders and the European Commission.

However, as the interlocutors of the newspaper note, canceling the deal will not be so easy. “Canceling an existing deal eight years later is not the same as doing a transparent review at the very beginning,” Peter Lu, a partner and head of the international law firm McDermott Will & Emery in China, was quoted by the FT as saying. “This could seriously damage the image of the Italian government (in China.— “b”), as soon as it was written about in the Chinese media. And this may be followed by a reaction of the population, which may begin to abandon Italian brands.”

“The government is in a difficult position. We are talking about a company listed on the stock exchange, and this could set a dangerous precedent,” summed up one of the Italian government officials.

Kirill Sarkhanyants