It Would be Pirelli’s Downfall

Marco Tronchetti Provera may be an extremely qualified financial manager, but with regards to major financial transactions his timing has most definitely been off. A few years ago Pirelli bought a major share of Telecom Italia at a premium price that could be seen only a few months later. However it is easy to see with hindsight and no-one could have predicted the events of 9/11 and its implications on the world’s stock markets.

Just a few short weeks ago another financial transaction failed. Provera’s plan to generate 1 billion euros through a sell-off of parts of Pirelli’s tyre business was ill-fated from the beginning. This time the window of opportunity closed too fast. Competitors were forced to issue earnings warnings and overnight stock holdings in tyre companies were no longer considered ”sexy.”

Now speculation is rampant. Will Pirelli´s tyre operations remain independent? Is there any truth to rumours that Michelin plans to acquire Pirelli?

Such transactions may command a certain charm for financial analysts. Wonderful theories and ideas are brought to life to give such suggestions an aura of plausibility. I sincerely hope that all of the products of the current rumour mill are just that, rumours, and will not become reality. Why?

If Pirelli is unable to generate cash through a market transaction, why should one expect that Michelin would pay the required price for the acquisition of Pirelli either in parts or as a whole. Strategic prices, far above premium, would be “acceptable” only to the analyst fraterntity. After all, unreasonable strategic prices in the wake of such a financial transaction would not hurt the banks but would help them realize fees. It is no surprise that “strategic prices” are often realized as long as one can point to a “visionary” CEO. However, it is altogether inconceivable to assume that the acting Michelin patron Michel Rollier is in search of such a “visionary” label.

Pirelli is and remains an accomplished tyre manufacturer. The company maintains a global footprint with production in low cost countries like Turkey, Romania and China; it commands a strong presence in Brazil; top of the line products are being produced in state of the art facilities such as Hoechst, Bollate and other MIRS facilities. All prerequisites for future success are therefore present.

But what makes Pirelli so unique is the Pirelli brand itself, its image, personality and achieved brand awareness. These attributes did not fall from the sky, they were achieved through the company’s distinctly Italian culture and heritage, its elegance and passion for life.

No doubt, even financial amateurs can buy equipment and tools, can conceptualise and build plants. But is that enough to guarantee a sustainable success? People make the difference! And brands. But brands and people are closely linked.

Does Pirelli really fit under the Michelin or, for that matter, the Continental umbrella? Pirelli is one of the few distinguished global premium brands that cannot successfully be managed and distributed with other brands in the same portfolio. Pirelli’s products are unique because Pirelli concentrates on Pirelli products and nothing else.

Those who place the Pirelli brand in a conceived company portfolio may be rich in theory but poor in the real world. I am optimistic enough to believe that those who consider themselves to be captains of industry will not mess with Pirelli and its secret to success.

Pirelli is and remains a unique Italian success story. The brand and people are distinctly Italian and are very much intertwined. Changing this secret to success would be futile. So why would anybody want to try in the first place?