Pirelli all set for re-listing on Milan exchange

October 3, 2017

Pirelli-logoItalian tyre maker Pirelli will price its initial public share offering (IPO) at EUR6.50 per share, offering up to 40% of its shares, or 350 million shares. It expects to raise between EUR2.27 to 2.6 billion, depending on whether an over-allotment option is exercised.

Shares are expected to start trading on the Milan stock market on October 4.

Established in 1872 and one of Italy’s best-known corporate names, Pirelli’s return to the Milan exchange represents one of the biggest IPOs in Europe this year.

The world’s fifth largest tyre maker was de-listed in 2015 from the Milan bourse, where it had traded since 1922, following a takeover by state-owned China National Chemical Corp (ChemChina).

The re-listing will test demand for a streamlined firm that focuses on high-end tyres for the consumer market after its less profitable truck and industrial tyre business was folded into a unit of ChemChina.

Analysts say the share price has been lowered and is at the lower end of an already narrowed range, reflecting investors’ concerns over Pirelli’s debt, complex governance structure and risk that one of the existing minority shareholders could sell out once a lock-up period expires, according to a report in Reuters.

ChemChina took over Pirelli two years ago by acquiring a 65% stake in Marco Polo, the holding company controlling the tyre maker. It will remain the biggest shareholder after the IPO with a stake of just under 50%. The rest is held by investment fund LTI, linked to Russia’s Rosneft, which will drop to 5 and 6.6% after the share sale.

Pirelli is said to be more profitable than France’s Michelin and Germany’s Continental, but its core profit margin of around 20% is behind that of high-end Finnish rival Nokian, which stands at nearly 30%.

Through its focus on premium tyres, which it expects to account for 63% of sales by 2020, Pirelli is less exposed to economic downturns than in the past because that segment has proven less cyclical. But others like South Korea’s Hankook have jumped on the bandwagon, increasing competition in the market.

It also remains to be seen the role the Chinese will play in the company after the IPO, although Pirelli has repeatedly said ChemChina has taken a passive approach to its management, says Reuters.

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