Repositioning taking place at the top of Pirelli

There is a governance battle going on at the upper echelons of Italian tyremaker Pirelli, according to various news sources. According to the Financial Times, Marco Tronchetti Provera, chairman and chief executive of Pirelli has invited two private equity groups to buy out competing shareholders in what is being described as “an effort to shorten the chain of command at the group.”

The apparent difference of opinion between Tronchetti Provera and Malacalza Investimenti, says Financial Times (FT), began in August and is said to relate to decisions Camfin had to make about repaying debt due at the year end. However, there is likely to have been friction since Malacalza Group increased its stake in the tyre maker in 2010 and significantly shifted ownership of the company. At the end of June 2010, the Genoa-based Malacalza Group boosted its stake in Pirelli by increasing its stake in Camfin – Pirelli’s largest shareholder – to 12.1 per cent, and simultaneously announced plans to take a 30.9 per cent stake in GPI, a leading shareholder at Camfin. As a result Malacaza Group effectively became Pirelli’s second largest shareholder. Since then there has been a fair degree of to-ing and fro-ing due to the labyrinthine ownership structure.

According to FT the dispute is complicated by Camfin’s position in a complicated chain of ownership that effectively allows “three holding companies to control the world’s fifth largest tyremaker through relatively small stakes.” The three companies referred to are MTP Sapa, Gruppo Partecipazioni Industriali (GPI), and Camfin.

It seems that Tronchetti Provera’s holding company – one of the key Pirelli owners, MTP SAPA – has sort to streamline governance at Pirelli by announcing that it had signed an exclusive 15-day agreement with Italian private equity groups Clessidra and Investindustrial on 21 November. The goal is for the funds to work to basically buy out Malacalza’s shares in Camfin. But other options are that the company directly purchases a 5-6 per cent shareholding in Pirelli itself instead. The final possibility, according to FT, is that the company seeks to block the move with legal action. A buyout of Malacalza Investimenti’s shareholdings, plus other minority shareholders in Camfin could cost about 400 million euros, according to analysts’ estimates.