Pirelli Sell Cisco-Shares
Pirelli has sold a first stake of its Cisco-shares for US$1.55 bn to institutional investors. When it sold its “Pirelli Optical Systems” for US$2.15 bn the company received Cisco-shares in lieu of payment.
Known for its style, speed and performance marketing values, Pirelli & C. S.p.A. is a multinational company based in Milan, Italy, listed on the Milan Stock Exchange since 1922, with a temporary privatization period by the consortium led by the Chinese state-owned enterprise ChemChina.
Pirelli has sold a first stake of its Cisco-shares for US$1.55 bn to institutional investors. When it sold its “Pirelli Optical Systems” for US$2.15 bn the company received Cisco-shares in lieu of payment.
An article in the German magazine Wirtschaftswoche suggests that the Thyssen-Krupp group is planning a take-over bid for Continental. Whether or not this is the case, it throws up some interesting possibilities and our article analyses whether such a course of action is feasible and what it would mean to Continental. The article also examines what the effects would be on the European tyre market and how the big tyre manufacturers might react to such an eventuality. Should Thyssen-Krupp mount a successful bid, the chances are that it might decide that Continental’s tyre division is surplus to requirements. Given such a situation, the implications for companies such as Michelin, Bridgestone and Pirelli are enormous and the article explores the different scenarios that might arise from such a course of action and the defensive measures that the tyre giants might take. Is the Thyssen-Krupp bid a figment of the imagination, or an attempt to boost Continental’s share price? The article concludes that Continental is a tempting target for a takeover bid (by somebody) and that its recent strategy makes the group more defenceless than in the past.
Michelin intends to increase its share of the growing and highly profitable high performance market. Any gain of market share would be at the expense of Pirelli and Continental.
The foundation stone for a MIRS-factory was laid in the presence of Ministerpräsident Koch from the area of Hessen/Germany. Pirelli is investing 100 million Euro to produce about 1.5 million ultra-high-performance tyres by the year 2005. MIRS will create 200 more jobs. In addition to its own investment, Pirelli will receive an additional government grant of about 15 million Euro for meeting special environmental requirements.
In reply to an article in NEUE REIFENZEITUNG entitled “Bremsspuren im Odenwald” (“Pirelli Shows Brake Lights in Germany”) Dr. Wentz assured the “Darmstädter Echo” in an interview that the company was about to conclude an extraordinarily good 1999 business year and that there would be no personnel cuts. The correct version is: In the year 2000, Pirelli Germany (by which we mean Pirelli AG, Metzeler, Drahtcord and Pirelli Reifenwerke) will not be sacking 140 white collar workers, as previously reported, but only 45. On the other hand, Pirelli says it is going to employ 48 more blue-collar workers. These are the official figures from the office of Dr. Wentz, which we have no cause to doubt. Having said that, the numbers do not correspond with information that we have from other sources and they apply only to the year 2000. Further details will be given in future issues of NEUE REIFENZEITUNG.In October 1999, Pirelli chief Tronchetti Provera explained, against the background of falling profits, the need to reduce staff numbers in the Tyre Division by 800 in the year 1999.
Goodyear, Toyo and Cooper were the losers in mid May, although Toyo shares – like those of Pirelli – had increased in the beginning of the month. In the automotive industry, BMW, Mitsubishi and Volkswagen were the heaviest losers. But the shares of DaimlerChrysler, General Motors, Honda and Toyota lost as well. DaimlerChrysler, Fiat and Volvo even fell to an all year low.
Last weekend, Team Kooperation held its 4th annual meeting in Kassel. A special exhibition was held alongside the event in the Stadthalle Kassel which attracted such names as Bridgestone, Conti, Goodyear, Michelin and Pirelli, displaying their group brands. Some high-powered managers attended the event too; Bandag’s Martin Carver flew over specially from the USA. An important milestone was the planned merger between VRG and Team. The Kooperation has its own private brand for passenger and commercial tyres, made for it by the Conti group. Team’s aim is to expand not only nationally, but on a Pan-European basis, attracting enough members to give the group ample coverage of the markets.
The joint venture company Trelleborg Wheel Systems has launched its first product since the company was formed – the Pirelli TM600 radial tractor tyre. TWS specialises in agricultural and forestry tyres and turns over 320 million Euro a year. The new tyre has an 85 series aspect ratio, which is an unusual sector for the company, as Pirelli has in the past concentrated on lower profile tyres. However, Mr. Maurizio Vischi, MD and General Manager of TWS, explained that this sector, although declining, still accounts for 55% of the market. If TWS wants to be the technical leader in all areas of the market (which is its ambition) then it needs an 85 series tubeless tyre. The TM600 will be sold on an added value basis – although it is by no means the cheapest in its class, it offers the customer longer life, better fuel consumption, less soil compaction and increased productivity. These claims are the result of a year’s testing in the field. Initially, the TM600 will be available in 14 sizes, rising to 23 in time. It will replace the Pirelli TM200 and TM300. TYRES & ACCESSORIES spoke to both Mr. Vischi and Mr. Anders Pettersson (President of TWS). Both are extremely pleased with the way the two organisations (Pirelli and Trelleborg) have integrated across Europe and there are hints that the company is looking to grow through acquisitions as well as organic growth. TWS is aiming to expand geographically too and the USA has been targeted as a market with particular potential for the specialist agricultural tyre company.
Pirelli’s truck tyre division generated a 1999 turnover of 466 million Euro and an EBIT of approximately 38 million Euro (eight per cent of turnover). For the current year the division has set itself the firm target of breaking the 500-million-euro barrier. The commercial vehicle tyre business accounts for almost 20 p.c. of Pirelli’s tyre turnover, in which the truck tyre factory in Alexandria/Egypt plays a key role. (The group also has commercial vehicle tyre production in Settimo Torinese/Italy, Izmit/Turkey and Santo André/Brazil). The enterprise started in 1990 with a mere 11 p.c. Pirelli participation in the 150 million dollar investment. And even that was not in hard cash but in know-how about building a new truck tyre factory and research and development data for the product. Other investors were local, both private and public finance consortiums. As Egyptian legislation was liberalised, it became possible for the Italians to increase their share to 60 p.c. by capital raising measures and to take the industrial leadership. Only two years after the start of building the first truck tyre was produced at the Alexandria factory. In 1995 the annual capacity was 100,000 truck tyres, today 330,000. In two investment stages capacity is to be increased to 550,000 tyres in the short term and to 800,000 tyres per year by 2003. But the plans do not only involve volume growth; new products are also part of the project, for instance the tubed tyres FG85 and TG85 for on/off application in Africa and the Middle East, introduced on the Truck Tyre Day 2000. The total investment plan is for 140 million Euro. Currently only a third of the truck tyres produced in Alexandria go to export, but in future exports will account for about half the output. Read more in NEUE REIFENZEITUNG 5/2000.
The Viborg-Group, which bought first Stinnes Reifendienst and later Gummi Meyer and now has more than 400 depots in Germany, is facing more departures by Managers. The relatively young managers Scharwenka, Rudolph, Roth and Lemle do not see their future within the group any longer and are leaving. As far as business in general for the Viborg-group in Germany is concerned we hear very different opinions. Viborg is asking for the deepest price and in addition to that for an overhead of 10 %, giving them a real advantage over all competitors. Strategic partners at the moment are Michelin, Pirelli and Dunlop. It is not clear whether all of them are paying the extra price of 10 %. Other tyre manufacturers can see how difficult it is for the Viborg Group to fulfil their promises despite the fact that all the warehouses are completely full. There will be a long article in a future issue of NEUE REIFENZEITUNG. Furthermore, Viborg’s management is not willing to talk to the press and is urging employees not to talk to the press otherwise their jobs will be in jeopardy.
Dr. Paolo Masera, the current boss of Pirelli Reifenwerke, is convinced that Pirelli has every reason to look to the future as a profitable, independent tyre manufacturer. The revolutionary production method MIRS will not only make it possible for the Italian manufacturer to gain cost leadership, he believes, but the automated production process also promises a great improvement even on today’s quality. He stresses Pirelli’s role as the well-accepted technology partner of the motor manufacturing industry in Europe, supplier to Porsche, BMW, Rover, DaimlerChrysler, Ford, Volkswagen, Audi, Opel and others. Pirelli will not offer a multi-brand strategy because users are less interested in so-called cheap brands; they would rather buy first-class brands at a more favourable price. That does not exclude arrangements with larger customers for the supply of certain group house brands, e.g. Courier, if there is a call for it. The German organisation is facing a fundamental change. In future the emphasis will be more on key accounters, and so-called “channel marketing” is to be strengthened.
Tyre business was better than expected for Cooper in the first quarter of 2000. Due to the Cooper management the company succeeded in entering into new business relationships with some huge companies in the USA. Doubtless the joint venture with Pirelli was helpful in this.
Cooper Tire & Rubber, the US tyre and rubber manufacturer, announced sales of US$ 2.2 bn, which is an increase of 17% compared with 1998. Net income was US$ 135.5m. This figure is 6.7% up on 1998.
Pirelli recently invited journalists and analysts to its factory at Bicocca, Milan in order to see first hand the company’s new manufacturing process MIRS (Modular Integrated Robotized System). MIRS reduces the steps in tyre manufacturing from 14 to 3 and a tyre can be produced every three minutes. Tyres are built round a special drum, with the instructions given to the robots (the process is totally automated) through a barcode. The tyres are said to be more uniform and consistent. As well as its speed and flexibility, MIRS has the advantage of compactness and a line capable of producing 125,000 tyres a year can be sited in an area of a mere 350 square metres. Pirelli Chief Executive Marco Tronchetti Provera said that Pirelli will invest 50 million Euro over the next three years in 80 MIRS lines, increasing output by ten million tyres a year. Two of these lines will be located at Pirelli’s Burton-on-Trent factory in the UK, concentrating on SUV and 4×4 tyres. Burton stopped making tyres in 1994 and the news is a welcome change for the UK tyre manufacturing industry. It is a large factory, and there is ample scope for more MIRS lines to be added in the future, should this be Pirelli’s strategy. The figures associated with MIRS are truly impressive; investment costs are lower than for traditional factories and the minimum economic batch size has been reduced from 3,200 units to 375. The time taken to change sizes comes down from 375 minutes to 20. Workforce productivity is increased by 80% and MIRS uses less energy than a ‘normal’ plant. The manpower needed is significantly reduced too – it is estimated that 850 staff will be needed to produce the proposed ten million tyres. There is one other figure which, in these days of competition and falling prices, is even more interesting – a MIRS tyre is 25% cheaper to produce than a conventional tyre.
As reported by the Indian magazine Rubber Asia, Pirelli has sought the expertise of Citybank for a cost evaluation of the Birla Tyre company, which has a 15 per cent share of the Indian truck and automotive tyre market. The deal, if everything goes well, is likely to be struck sometime this month.
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