Pirelli’s Acquisition by

ChemChina: Has a New Era

Begun for the Global Tyre
Industry?
Consolidation speeds up in the global tyre industry as Pirelli gains rare access to the Chinese
market ahead of Western peers.

Pirelli announced on Monday that it agreed to a Rank Co / CountryTire

HQ sales ($M)
Rank
€7.1bn acquisition by ChemChina. State owned
ChemChina is China’s largest chemical company
with a 2013 turnover of about €35 billion. It is also
the parent of China National Tire & Rubber 1 Goodyear, 6,190 1
Company (CNTR), whose best known brand is USA
Aeolus, not a household name outside China.

For over three decades, Pirelli has been the fifth 2 Michelin, FR 4,640 2
largest tyre maker in the world, squaring off with the
three largest players Bridgestone, Michelin and
Goodyear, and a group of second-tier players,
including Continental Tire (Germany), Sumitomo 3 Bridgestone, 2,632 3
and Yokohama (Japan), Cooper Tire (USA). More JP
recently, Hankook (S. Korea), Maxxis (Taiwan) and
Hangzhou Zhongce (China) joined the list of the top
10 players, while Cooper Tire of the U.S. was 4 Firestone, 2,532 4
relegated to the group of followers. In 2013, Pirelli USA
had to relinquish its fifth position and dropped to
sixth, being overtaken by Sumitomo; it reclaimed its
position, however, in 2013. Snapping on its heels 5 Pirelli, IT 1,694 5
now was Hankook that had advanced to seventh
from its eight position, and that has not made any
secret of its ambition to become the fifth largest
player. 6 Continental, 1,292 6
DE
Table 1: Rank of tire manufacturers by sales in 1985
and 2013.
7 Sumitomo, JP 1,215 7
1985 2013
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 Hankook, KR
8 BF Goodrich, 1,184 8
USA

9 General 1,156 9
Tire, USA

10 Uniroyal, 953 10
USA

11 Yokohama, 933 11
JP

12 Toyo, JP 620 12

13 Armstrong, 488 13
USA

14 Dunlop Tire, 445 14

USA

15 Cooper, USA 445 15

16 BTR Dunlop, 350 16

UK

17 Uniroyal- 343 17
Englebert,
DE

18 Sempirit, AT 310 18

19 Hankook, KR 260 19

20 Ohtsu, JP 245 20

Source: European Rubber Journal: Global Tire

Report, 1986, 2014

CNTR claims that it sold about 20 million tyres in

2014, which is roughly a tenth of Bridgestone’s
production. That would put CNTR’s combined tyre
activities somewhere around number twenty in the
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 global tyre league tables. With Pirelli about a pricey, the low euro would sweeten the bid.
quarter of the size of Bridgestone, Pirelli was taken
over by a tyre company less than a third its size. And while once all-mighty Goodyear may seem
beyond reach, its US$7 billion market cap – less than
Racing for buyouts a quarter of Bridgestone’s market cap of US$32
billion -- and total enterprise value of US$12 billion
The writing was on the wall after Geely’s 2010 (TEV/EBITDA of 5.4) makes it within reach of several
acquisition of Volvo and Dongfeng’s 2014 bold Asian players. It would be a repeat of
investment of 14 percent of the capital of PSA Bridgestone’s Firestone takeover and Michelin’s
Peugeot Citroën in 2014. The Chinese suppliers to Uniroyal-Goodrich acquisition in the 1980s that then
the car companies could be expected to spread reshuffled the deck of cards.
their wings also, and the Pirelli acquisition is a bold
move that is likely to create a new “number five” in Karel Cool is the BP Chaired Professor of European
the world, right behind Conti. Competitiveness and Professor of Strategic
Management at INSEAD. He directs the Competitive
This is a major catch for CNTR as it opens doors to Strategy programme, part of INSEAD’s suite of
the prime car manufacturers around the world. The Executive Development Programmes.
replacement market however is by far the biggest
and most profitable worldwide for tyre makers and Follow INSEAD Knowledge on Twitter and Facebook
this gives CNTR a segue into a segment dominated
by the major European and Japanese tyre brands. It 177
also throws a wrench in the works of Hankook that is
feverishly building up from scratch its position
around the world.
Find article at
Pirelli reverses into China https://knowledge.insead.edu/blog/insead-blog/pirellis-
acquisition-by-chemchina-has-a-new-era-begun-for-the-
CNTR also buys a technology base in passenger and global-tyre-industry-3919
truck tyres, elevating it into the major technology
league. This may become a major headache for
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Michelin and Bridgestone. They have been trying to
crack the Chinese market in passenger tyres and
truck tyres for years, without much success. While
Michelin has been forced to invest in the production
of budget tyres to counter Chinese imports into
Europe and the US, the CNTR-Pirelli tie-up creates a
challenge in the core proposition and markets of
Michelin (and Bridgestone). If CNTR succeeds in
also deploying Pirelli’s truck tyre technology to the
booming truck tyre market in China, this would
create a major challenge for Michelin and
Bridgestone.

As important and symbolic as this acquisition is, the

question is: what tie-ups are to follow next? The
rising U.S. dollar makes acquisitions in the US.. more
expensive, but Cooper Tire, which ended up being
severely scarred after the failed merger with India-
based Apollo Tyres, remains a prime candidate.
Germany’s Continental Tire is owned by the debt-
laden family-owned Schaeffler Group, which bought
Conti in 2008 for €12 billion and almost bankrupted
the company. The tight cash situation of the mother
company has forced Conti into a delicate “surplace”
act while being the bank for Schaeffler’s ball-
bearing automotive activities. The company is
rumoured to be close to an IPO for the non-Conti
activities, which would give a fresh inflow of capital
– and options for Conti. A Conti-Hankook tie-up
would create a major new force. While other
combinations are possible and a bid would be
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