From now on, Pirelli is “for sale”

As reported yesterday, Pirelli CEO Marco Tronchetti Provera, whose family holds the largest single stake in the company, plans a full departure from the company, first as CEO and then as shareholder. The only point we can now speculate on is the timeframe this will occur within; Tronchetti says he plans to take this step in 2017.

In all his prior business activities Tronchetti, Leopoldo Pirelli’s former son-in-law, has appeared to be closely linked to the tyre maker and therefore his decision to exit comes as a surprise. It seems to be based on personal considerations. The father of three has no obvious successor within the family, leaving him to face the simple truth that innate entrepreneurship isn’t hereditary.

Over the course of his career, Tronchetti has demonstrated that you don’t need to completely own a company in order to completely control it. The Italian corporate system for a number of decades was similar to that seen in some other European countries, where large companies all held a small percentage shareholding in each other and voted together at shareholders’ meetings. This made hostile takeovers impossible. While Pirelli’s connections with other Italian firms weren’t as strong as those between companies elsewhere, for example between certain German banks and companies (a relationship referred to in that country as ‘Deutschland AG’), legendary co-founder and president of Milan-based investment bank Mediobanca Enrico Cuccia pulled the strings at Pirelli well into old age. As Pirelli struggled for survival following its abortive attempt to take over Continental, the then 85-year old Cuccia visited his own office every day, offering the space and time needed to reorganise the company. But these days, better options exist for well-financed families than investing a few per cent in a company here and a few per cent there. The era of Italian business families sticking together has come to an end. The core direction companies take is no longer decided in the back room. That was witnessed at Pirelli last year. Tronchetti was once again able to win a power struggle against a defiant rival, however for a long time nobody could predict the outcome of this particular struggle.

Tronchetti Provera and his family’s decision to exit Pirelli is surprising, and the stated timeframe for this is equally puzzling. At present, Pirelli shares trade at an all-time high of almost €12; the price in May 2013 was approximately €7. At today’s rate, especially when factoring in the block sale premium, bidding Pirelli farewell is by no means an unattractive proposition. But who can guess what the share price will be in three years’ time? Furthermore, it makes no sense to announce your intention to sell years in advance. Marco Tronchetti Provera knows this better than anyone. The game has commenced – it now remains to be seen who will get involved in the bidding process.

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