Pirelli Encourages Stake Reduction by Sinochem Amid US Market Concerns
Pirelli’s board is intensifying its efforts to persuade Sinochem, its largest investor, to divest part of its stake due to growing concerns about the impact of US trade policies on the Italian tire manufacturer’s expansion plans in the United States.
Stakeholder Dynamics
During a recent board meeting, Pirelli’s management emphasized the need for Sinochem to lower its current 37% ownership to below 26.4%, the stake held by Italian shareholder Camfin. This proposal reflects the drastic adjustments companies must make in response to the heightened protectionist stance of the Trump administration toward Chinese investments.
Geopolitical Pressures Affecting Business
The urgency behind Pirelli’s request comes amid a broader trend of international businesses, including Korea’s Hyundai, announcing substantial investments in the US market—Hyundai’s recent declaration of a $21 billion investment was framed as a victory for Trump’s trade policies, which aim to bolster domestic production.
Proposed Strategies for Stake Reduction
Pirelli’s strategy includes a potential share buyback that would achieve the desired reduction in Sinochem’s stake. The plan proposes repurchasing shares and selling them off quickly in the market, although the final agreement with Sinochem, represented by Jiao Jian (also Pirelli’s chair), remains uncertain following unsuccessful preliminary discussions.
Challenges in US Expansion
Currently, Pirelli operates a factory in Georgia, but the majority of its North American tires are produced in Mexico and South America. Due to Trump’s trade measures, including threatened tariffs on imports, the company is looking to expand manufacturing capabilities within the US—a market where it generates 25% of its global revenue.
Concerns Regarding Chinese Ownership
The reluctance from US authorities to support Pirelli’s expansion appears to be linked to the presence of a Chinese state-owned entity as its largest shareholder, leading to fears it may be excluded from significant market opportunities, particularly regarding innovative technologies related to automotive systems.
Regulatory Environment
A ban on Chinese automated driving systems and technology that integrates with vehicles has been confirmed by US regulators. This regulatory landscape further complicates Pirelli’s position, especially given its proprietary technology that connects tire sensors with vehicle commands—a capability in high demand in the US market.
Historical Context
Sinochem’s involvement with Pirelli dates back to 2015 when the Chinese company acquired a majority stake valued at $7.7 billion. As part of that agreement, Sinochem committed to refraining from engaging in daily operational decisions of Pirelli. However, recent disagreements about management control have exacerbated tensions between the two companies.
Recent Developments
This push comes approximately two years after the Italian government under Prime Minister Giorgia Meloni introduced measures that restricted Sinochem’s rights, reflecting a growing trend of state intervention in foreign investments that pose potential risks to national interests.
As Pirelli prepares for ongoing discussions, the outcome of their negotiations with Sinochem will be crucial in determining the company’s future in the US market and its ability to navigate the complexities of international investment amidst geopolitical tensions.
