Italy has stripped China’s Sinochem of its influence as Pirelli’s largest shareholder, revoking its right to appoint the chief executive or set the tiremaker’s strategy in response to concerns about Chinese state meddling.
Italian Prime Minister Giorgia Meloni’s government has raised national security concerns about possible misuse of Pirelli chip technology, as well as interference by the Chinese Communist Party, to justify the new restrictions on Sinochem, which owns a 37 percent stake in the company.
Details of the restrictions follow an unprecedented announcement from the Italian government Friday night that it would impose a “network of measures to protect Pirelli’s independence”.
The government order, seen by the Financial Times, gives Camvin — the private investment vehicle of Pirelli CEO Marco Tronchetti Provera, which owns 14 percent of the company — the unlimited right to appoint the chief executive.
According to the order, Sinochem, which holds its stake through China National Rubber Corporation, will also be barred from participating in decisions regarding Pirelli’s “mergers and acquisitions, sales, spin-offs, or listing of financial instruments.”
Under the previous shareholder agreement between Sinochem and Tronchetti Provera, who has run the company since 1992, the CEO was entitled to choose his successor.
But Sinochem proposed a new agreement that would eliminate the clause, amid rising tensions between Tronchetti Provera and its Chinese partners. This updated agreement was submitted to the Italian government in March, which prompted a revision.
Italy’s overarching “golden power” over investments in strategic national assets allows it to veto acquisitions, force share sales, or impose other restrictions on foreign investors in certain assets. At the time of Pirelli’s investment in Sinochem in 2015, these powers were not as extensive and the deal was not subject to a national security review.
On Friday, the government said it wanted to protect the independence of Pirelli and its management, amid allegations that the Chinese Communist Party was trying to impose tighter control over its operations.
Sinochem has so far refused to comment on the proceedings, with lawyers saying Beijing is still reviewing the decision and its implications. Pirelli declined to comment but is expected to publish a statement later on Sunday.
A senior Italian official familiar with the case described Rome’s involvement as “minimal”, in light of the possibility that the government may have ordered Sinochem to reduce its stake in Pirelli or even sell it outright.
“I think they will be relieved to know that their shares have not been affected,” the official said, noting that Sinochem also retains its representation on the Pirelli board.
However, Rome also mandated that Pirelli appoint another Italian national, vetted by the Italian government, to the board of directors to ensure its provisions were followed.
It also asked Pirelli to reject any requests from the State Council’s China State-Owned Assets Supervision and Administration Commission, including the exchange of information. The two companies will also have to hold treasury and fundraising functions separately.
Sinochem has been ordered to refrain from any interference that might suggest that Pirelli’s decisions are the “result of hypotheses” from Beijing.
Michele Gerassi, who, as Undersecretary of Italy’s Ministry of Economic Development, worked for Rome’s accession to Beijing’s Belt and Road Initiative, warned that Pirelli’s intervention would “annoy” Beijing, and increase the risks for Italian companies operating. In China.
“[China] “Discontent and resentment will be shown with words, but they are smart and do not retaliate immediately, in a clear and visible way,” Jirachi said. “But when an Italian company encounters problems in China, it will pay the price for the Italian government’s decision.”
He added that the reasons for the intervention seemed unconvincing.
This golden power thing is driven by the need for Meloni and [finance minister Giancarlo] That Giorgetti is seen as anti-Chinese, pro-American and pro-NATO”. This is not a national security or strategic asset. If you’re tracking a truck driver – where he goes, how fast he goes and if he stops to go to the toilet, it’s not a state secret. “.
He also said it would send a harmful signal to other foreign investors. “The rest of the world will see an Italian government game the rules of investment,” he said.