In May 2018, three years after ChemChina’s $7.7bn takeover of Italy’s Pirelli, the chemicals group’s founder and chair Ren Jianxin celebrated the companies’ “wonderful marriage” as he hosted the tyremaker’s chief executive Marco Tronchetti Provera at the state guest house in Beijing.
But Pirelli’s happy union — now with Sinochem after the state-owned giant’s absorption of ChemChina — has fallen into crisis, with the Italian tycoon warning a Rome committee this week that “the Chinese are dangerous” and the company’s future is under threat from the Communist party.
The Italian government has been reviewing Sinochem’s Pirelli holding under so-called golden power rules that give it broad oversight over strategic national assets that it could decide include the tyremaker’s technology, which the 75-year-old Tronchetti Provera likes to describe as an example of “Italian excellence”.
After marrying into Pirelli’s founding family, the Milanese son of a steel entrepreneur first took a stake in the company in the mid-1980s. The investment was funded through the sale of a logistics company he had founded in his twenties after returning from a stint with P&O Ferrymasters in London.
Tronchetti Provera took over in 1992 when his then father-in-law Leopoldo Pirelli was forced to resign following a failed hostile takeover of German rival Continental that left the Italian group on the brink of collapse.
Following a painful but successful turnround, divesting non-core assets and focusing on the development of high-end tyre technology, he established himself as a fixture of Italian corporate life, known both for his dedication to Pirelli and his contrarian and at times controversial views.
“He still works 15 hours a day, seven days a week,” said Federico Imbert, former head of Credit Suisse in Italy who worked on several deals with Pirelli since the 1990s. “There’s no one who knows the company better.”
One former Pirelli executive described Tronchetti Provera as “the undisputed deus ex machina” of the group.
The Chinese deal, which raised eyebrows in the west and sparked investor fears of technology transfer, fed a reputation for single-mindedness gained through moves including his disputed takeover in the early 2000s of former monopoly Telecom Italia, which he sold six years later, and Pirelli’s expansion into Vladimir Putin’s Russia. Tronchetti Provera prefers to characterise himself as “willing to go it alone”.
“One crucial thing in life is that it is important to stick to your word and deliver,” he said in 2019. “When you deliver, no one wants to change anything.”
After the Chinese takeover, Tronchetti Provera trod carefully to maintain his grip on the group. Before returning Pirelli to the market in a 2017 public offering, he managed to quell investors’ concerns by negotiating new company bylaws to stem the risk of turning one of Italy’s most venerable manufacturing groups into a Chinese-run entity.
“He dedicated his life to Pirelli, which is one of the few Italian global brands left,” said Imbert.
Under a three-year pact with the Chinese side, Tronchetti Provera — who had been due to step down in 2020 — had the right to appoint his own successor and four board members. While his designated successor is his deputy Giorgio Bruno, allies and executives say the chief executive secretly hopes his role will eventually be inherited by his son Giovanni, who has been on the board since 2017.
“He’s on top of everything,” said Domenico De Sole, a Pirelli board member and the former chief executive of Gucci and Tom Ford.
Investors and colleagues were impressed by Tronchetti Provera’s ability to remain firmly in the saddle even after Sinochem took over. “He is the de facto owner of a company in which he only actually owns a minority stake,” said one person close to Pirelli.
But the status quo has shifted as the Chinese Communist party seeks to exert more influence on the 150-year-old Italian group. The imposition by the US of a 76 per cent antidumping duty on the value of Pirelli imports from China five years ago were a wake-up call, according to two executives in Milan.
Then, in late 2020, the Trump administration included Sinochem and ChemChina in a Pentagon watchlist of companies with close ties to China’s military that were operating in the US.
Tronchetti Provera resolved to do something and sounded out potential alternative investors in Europe and the Middle East, but the Chinese would not budge.
The situation came to a head last summer after Sinochem’s respected chair Frank Ning retired and was replaced by Li Fanrong. Meanwhile Bai Xinping, chair of Sinochem’s tyre division CNRC, was replaced by Wang Feng, who will become a Pirelli director at the upcoming shareholder meeting and is described as the antithesis of Tronchetti Provera by people who know both men.
Then in September, Sinochem demanded that Pirelli inform it in advance of any meetings with public officials, including Italians.
Instructions by Sinochem’s internal Communist party committee followed. Pirelli subsidiaries in China were told to select board members and talent according to President Xi Jinping’s “vision of Socialism with Chinese characteristics for a new era”.
“As businesspeople we look at the numbers, and so did Sinochem up until a certain point,” said De Sole. “Then it shifted and the issue became purely political.”
As the expiry of the shareholder pact loomed, the new Chinese management updated the agreement with terms more favourable to them.
Tronchetti Provera was horrified but wanted to resolve the issue without escalating it all the way to Rome, according to people close to the executive.
He hopped on his private jet and flew to Hong Kong to meet Sinochem’s new chair and try to persuade him to sell down his company’s 37 per cent stake to about 10 per cent. But Li refused, saying he did not have the authority to decide, according to multiple people briefed on the discussions.
A notification to Rome about the shareholder pact’s revision dragged Italy’s government into a corporate dispute that has been years in the making, setting up a litmus test of Sino-Italian business ties as Rome considers curbing Chinese influence over one of the crown jewels of Italian industry.
In the words of one ally, “it is also the battle on which Tronchetti’s legacy is hinged”.
Source: Financial Times