ChemChina to buy Italian tire maker Pirelli in $7.7 billion deal

By Paola Arosio and Danilo Masoni

MILAN (Reuters) - China National Chemical Corporation (ChemChina) agreed on Sunday to buy tire maker Pirelli in a 7.1 billion euro ($7.7 billion) deal that will place one of the symbols of Italy's manufacturing industry in Chinese hands.

The deal with Pirelli's shareholders is the latest in a string of takeovers in Italy by cash-rich Chinese buyers, who can take advantage of a weak euro just as signs emerge that Europe is coming out of economic stagnation.

It will give ChemChina access to technology to make premium tires, which can be sold at higher margins, and give the Italian company a larger presence in the huge Chinese market.

ChemChina's tire making unit China National Tire & Rubber will first buy the 26.2 percent Italian holding firm Camfin owns in Pirelli and will then launch a mandatory takeover bid for the rest.

The bid will be launched by a vehicle controlled by the Chinese state-owned group and partly owned by Camfin investors - Pirelli's boss Marco Tronchetti Provera, Italian banks UniCredit and Intesa Sanpaolo, and Russia's Rosneft, Camfin said in a statement.

The offer will be launched at 15 euros per share, valuing the group at 7.1 billion euros excluding net debt of almost 1 billion euros at the end of 2014. The ChemChina unit also envisages taking the world's fifth-largest tire maker private.

As details of the deal were leaked on Friday, shares in Milan-listed Pirelli, which started business 143 years ago producing rubber items, rose to a 25-year high and topped the 15 euro buyout price, prompting analysts to say shareholders may want to think twice before tendering their shares at that level.

Sources close to the matter said on Friday the deal with the Chinese group will mean Rosneft, which is facing international sanctions due to the Ukraine crisis and needs to cut debt, reduces its stake in Pirelli.

The agreement would give ChemChina access to technology used in making lucrative premium tires and could help China, already a global player in sectors such as telecoms and internet, develop its automotive industry.

In turn Pirelli, whose tires equip cars in Formula One motor racing, would have more bandwidth to compete against larger rivals such as Michelin and Continental which are looking for growth in Asia.

Camfin said on Sunday Pirelli's less profitable truck and industrial tire business would be folded into ChemChina's listed unit AEOLUS, allowing it to double its output.

The new Chinese owners will pick a new chairman while Tronchetti Provera, who started working in the tire maker in 1986 after marrying a member of the Italian family that founded the firm, will remain chief executive.

Previous Chinese acquisitions in Italy, the euro zone's third-largest economy, include stakes in power grid firms Terna and Snam, turbine maker Ansaldo and luxury yacht maker Ferretti [FRREF.UL].

Excluding the financial sector, Italy is the second-biggest acquisition market for China in Europe and fifth-largest worldwide with 10 deals completed since the start of 2014, according to Thomson Reuters data.

($1 = 0.9221 euros)

(Writing by Danilo Masoni and Silvia Aloisi; editing by Susan Thomas)