>>> Up
* Anglo American Raised to Outperform at RBC; PT 2,700 pence
* Assa Abloy Raised to Buy at HSBC; PT 305 kronor
* Auto Trader Raised to Buy at Shore Capital (+)
* BNP Paribas Bank Polska Raised to Buy at Erste Group
* Burberry Raised to Hold at HSBC; PT 2,200 pence
* Central Asia Metals Raised to Outperform at RBC; PT 245 pence
* H&M PT Raised to 115 kronor from 97 kronor at Citi
* Revenio Raised to Buy at Nordea; PT 36 euros
* Sobi Raised to Overweight at Morgan Stanley; PT 280 kronor
* UPM-Kymmene Raised to Buy at Jefferies; PT 34.70 euros
* Vale ADRs Raised to Outperform at RBC
* Ypsomed PT Raised to 295 Swiss francs at Credit Suisse
>>> Down
>>> Down
* AIB Group Cut to Underweight at Morgan Stanley
* Apple Cut to Neutral at DA Davidson; PT $185
* Deutsche PBB Cut to Sell at Citi; PT 6.10 euros
* Dr Martens Cut to Hold at Peel Hunt; PT 150 pence
* Kone Cut to Hold at HSBC; PT 52 euros
* Kone Cut to Hold at HSBC; PT 52 euros
* Randstad PT Cut to 40 euros from 50 euros at Oddo BHF (+)
* Storebrand Cut to Hold at Nordea
* Viaplay Cut to Neutral at Redburn (+)
>>> Initiation
>>> Initiation
* Airbnb Reinstated Neutral at Wedbush; PT $130
* AO World Rated New Buy at Shore Capital (+)
* Bango Rated New Buy at Stifel; PT 315 pence (+)
* Berentzen-Gruppe Rated New Outperform at Oddo BHF; PT 10 euros
* Berentzen-Gruppe Rated New Outperform at Oddo BHF; PT 10 euros
* Booking Reinstated Outperform at Wedbush; PT $3,060
* Expedia Reinstated Neutral at Wedbush; PT $116
* Nvidia Rated New Overweight at Guotai Junan Sec
* Renew Rated New Buy at Berenberg; PT 950 pence
>>> Call
>>> Call
* Deutsche PBB Downgraded to Sell at Citi on Real Estate Exposure
* ING Top European Bank Pick at MS, AIB Group Cut to Underweight
* Sobi Appears Set For Growth Inflection, Morgan Stanley Upgrades
* UPM-Kymmene Upgraded at Jefferies Following Underperformance
* UPM-Kymmene Upgraded at Jefferies Following Underperformance
What’s Next for Tiffany Under LVMH
After Beyoncé campaigns and a sweeping renovation of its New York flagship, CEO Anthony Ledru is planning to push the brand upmarket on multiple fronts, starting with high jewellery.
In the two-plus years since acquiring Tiffany in a $16 billion blockbuster deal, LVMH has gradually revealed its plans to remake the brand from the bottom up. There was the Beyoncé and Jay-Z campaign, the “Lock” fine jewellery collection and the recently reopened flagship designed to please window-shopping tourists and high rollers alike.
Now, change has come to the top: The brand on Monday revealed its 2023 “Blue Book”, a series of intricate pieces priced upwards of $100,000 that marks the brand’s first high jewellery collection since bringing on former Cartier designer Nathalie Verdeille as chief artistic officer in 2021, as well as the first collection fully developed under LVMH.
Inspired by the archives of marine life-obsessed former designer Jean Schlumberger — who led Tiffany’s studio during its mid-20th century heyday — the collection includes spiky diamond and ruby creations inspired by sea urchins, sapphire jellyfish and coral rings, and a gemstone-encrusted seashell hiding a 21-carat black opal.
In recent years, high jewellery has evolved into a profitable and fast-growing niche in addition to being a key exercise for top-end brands’ prestige. That’s partly down to its rarity: just a handful of luxury players are able to source exceptional gemstones for these limited-edition lines, where prices typically start in the high five figures and can stretch into the tens of millions.
Stones like the suite of 35 pink diamonds Tiffany recently acquired from the now-closed Argyle Mine are proving irresistible to ultra-high-net-worth customers. Dior and Chanel are also working to expand their high jewellery businesses, staging major events in Como and London this week, respectively.
“A focus on high jewellery is non-negotiable; it’s been very much part of the success of Tiffany,” chief executive officer Anthony Ledru told BoF.
“There has been so much creation of wealth the past 5 to 10 years, and the average age of high jewellery clients dropped a lot, especially in Southeast Asia, China, or Malaysia,” he added. “Then, when you have something unique that the client wants, what’s the price tag?”
As Tiffany leans into high jewellery, it’s hoping to grow the category’s sales as well as taking the rarity and quality of products even higher: The brand decided to phase out all “enhanced” stones, pushing teams to source only an extra-rare grade of sapphires and rubies that have not been heated to intensify colours or dissipate inclusions, or emeralds that haven’t been oiled to fill in pores.
The company entered an agreement to buy two major French workshops for high jewellery, Orest and Abysse, earlier this year, more evidence it sees the segment as a true growth opportunity rather than simply an image play. In addition to one-off pieces in its seasonal “Blue Book” collection (for which the cover of its historic catalogue inspired the brand’s signature blue boxes), Tiffany is ramping up marketing for its “Bird on a Rock” line, an icon of the Schlumberger era in which jewel-incrusted cockatoos are perched on large gemstones.
High jewellery has also become a priority as Tiffany tries to shake a reputation for depending on entry-priced silver trinkets to drive its business — as lines like heart-shaped “Return to Tiffany” charms sometimes drowned out the brand’s legacy for prestigious diamond work. A 2021 campaign featuring Beyoncé wearing the famed “Tiffany diamond” was a first gambit by Alexandre Arnault, the brand’s executive president for product and communications, followed more recently by efforts like a push to dress men on the red carpet with Schlumberger’s bird brooches.
Upmarket Push
Tiffany has grown its high jewellery business by 300 percent since the LVMH acquisition, achieving “hundreds of millions in additional sales”, Ledru said. Silver lines, meanwhile, are now estimated to make up less than 15 percent of sales, compared to around one-fourth of revenues prior to the acquisition, according to HSBC.
“For a brand like Tiffany high jewellery is an opportunity to accelerate the shift in perception,” HSBC analyst Erwan Rambourg explained. “Many people think Tiffany is a gifting brand run by silver, and it’s not.”
High jewellery is just one part of the puzzle. The brand plans to animate classic collections more aggressively in the much-bigger fine jewellery segment, with items earmarked for marketing support and relaunched designs including Schlumberger’s “Jackie” bracelet or Elsa Peretti’s sensual cuffs. Schlumberger’s bird motif also represents a prime opportunity to develop more accessibly-priced declinations in seasons to come, Ledru said.
“The job of Nathalie [Verdeille] is to be a prophet of the past … A designer of Tiffany needs to ask, what would Schlumberger do today?” Ledru said. As a brand founded in 1837, the weight of Tiffany’s heritage “means constraints, it means responsibility but it also means authenticity. There’s no ex nihilo creation at Tiffany, only transformation.”
Previously Cartier’s fine jewellery creative director for 16 years, Verdeille has proved herself as an expert curator of archives, with a knack for “finding something to twist a creation and make it contemporary without changing the essential,” Ledru said.
Polishing the Silver
Tiffany’s approach to silver jewellery is also being revised: the brand is pushing chunkier, more complex (and more expensive) silver designs like its Hardware range to gradually shrink the share of entry-priced silver charms like ”Return to Tiffany”, as well as upgrading the heart-shaped signature line with gemstones and gold-plated details. For the brand’s most recent major fine jewellery release, Lock, it opted not to offer silver at all.
“We’re not ashamed of silver, it’s part of our heritage,” Ledru said. “What we’re not O.K. with is when silver becomes too commodified, or silver that takes the brand down where it’s not supposed to be.” The entry price at Tiffany has roughly doubled to over $500 as part of LVMH’s upscaling push.
In addition to higher-end products, the company is also working to upgrade its retail network in order to grow its market share among top-end buyers, particularly abroad. “The last piece of the puzzle is the retail network, this is where we have the greatest opportunity,” Ledru said.
While Tiffany has long been the biggest jewellery brand in the US, it continues to lag the likes of Cartier and Bulgari in Europe, the Middle East and Asia — which is becoming a higher-stakes market for the luxury industry as investors count on a rebound in China to make up for slowing growth in the US.
Following the reopening of its “Landmark” flagship in New York in April, the brand is working to develop a network of around 15 big (though less big) flagships it will position as “cultural hubs,” mixing products with art, archival jewellery, food and hospitality.
A recent opening in Dubai Mall is set be followed up by renovations and openings including a new location in Tokyo’s trendy Omotesando district.
Ledru declined to comment on reports of a pending LVMH reshuffle on the Champs-Elysées thoroughfare, where the group’s acquisition of the former HSBC headquarters could set off a round of musical chairs among its top brands. He confirmed, however, that in the medium-term Tiffany hoped to upgrade its Paris presence with “very strong flagships” on both the Champs-Elysées and Place Vendôme.
Despite uncertainty for luxury brands in Tiffany’s US stronghold, analysts expect the brand to keep growing at a clip as it follows up splashy marketing campaigns with upgraded products and stores. The brand is on track to increase sales an average of 20 percent per year through 2025 after crossing the threshold of $5 billion in 2022, according to HSBC.
“Jewellery is in a bit of a super-cycle of growth,” Rambourg said. In the mostly unbranded, less competitive sector compared to fashion, the blockbuster acquisition of Tiffany served as a “bit of a wake-up call for the entire industry” causing rival brands to update their marketing and retail efforts alongside LVMH.
Laurent Chekroun Equity Sales
Makor Securities London Ltd. | Makor Group
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O: +33 1 42 33 02 05
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- Novo Nordisk (NOVC TH) +1.6%
- BAT (BMT TH) +0.9%
- BAT Maintains FY Revenue in Constant Currency Forecast
- Rio Tinto (RIO1 TH) +0.5%
- Andritz (AZ2 TH) +0.4%
- Continental (CON TH) -0.7%
- Heidelberg Materials AG (HEI TH) -0.7%
- Talanx (TLX TH) -0.8%
- Hugo Boss (BOSS TH) -0.8%
- Encavis (ECV TH) -0.8%
- Aroundtown (AT1 TH) -0.9%
- ASMI (AVS TH) -1%
- Watch Chip Stocks as TSMC Expects Capex Near Lower End of Range
- Evotec SE (EVT TH) -1%
- Maersk (DP4B TH) -1.3%
- Stellantis (8TI TH) -1.3%
DAX:
- Siemens Energy (ENR TH) -0.5%
- Siemens Energy Investor Raised Voting Rights to 5.01% on June 1
- BMW (BMW TH) -0.6%
MDAX:
- Aroundtown (AT1 TH) +0.6%
- Evotec, Krones, Software AG, Shop Apotheke Europe to Join MDAX
- United Internet (UTDI TH) +0.4%
- Evotec, Krones, Software AG, Shop Apotheke Europe to Join MDAX
- Encavis (ECV TH) -0.8%
- Hensoldt (HAG TH) -1.5%
- SMA Solar (S92 TH) -1.7%
- Siltronic (WAF TH) -2%
- Watch Chip Stocks as TSMC Expects Capex Near Lower End of Range
SDAX:
- VERBIO Vereinigte (VBK TH) +0.9%
- Shop Apotheke (SAE TH) +0.7%
- Evotec, Krones, Software AG, Shop Apotheke Europe to Join MDAX
- Elmos Semiconductor (ELG TH) +0.6%
- Varta (VAR1 TH) +0.4%
- Apple Suppliers Drop After $3,499 Vision Pro Headset Unveiled
- flatexDEGIRO (FTK TH) -1%
- Deutz (DEZ TH) -1.1%
- GFT (GFT TH) -1.1%
- Deutsche PBB (PBB TH) -1.8%
- Deutsche PBB Downgraded to Sell at Citi on Real Estate Exposure
Australia’s dollar jumped after the central bank surprised markets by raising interest rates above estimates to combat inflation. Asian equities rose Tuesday as gains by Hong Kong developers helped overcome a pause in global stocks’ rally.
The Aussie gained as much as 0.9%, while the policy-sensitive three-year government note yield was up 11 basis points as the Reserve Bank of Australia hiked its benchmark rate by 25 basis points to 4.1%. The RBA said inflation was still too high and some further tightening of monetary policy may be required. Shares in Australia extended losses. Meanwhile, an Asia stock benchmark climbed as the Hang Seng Index advanced as much as 1.4%, supported by a rally in the shares of real estate developers on speculation of new support measures for the sector. Both subsequently pared gains. Contracts for US benchmarks were steady after tech shares led the S&P 500 down Monday, with Apple Inc. wiping out gains of as much as 2% as investors parsed the potential of a new mixed-reality headset. The dollar weakened against all of its Group-of-10 peers and the yield on the 10-year Treasury was little changed for a second day. Shorter-end US rates edged up after slipping Monday when a report showed the US services sector nearly stagnated in May, causing a re-evaluation of the Federal Reserve’s interest-rate hike path. Oil declined as traders weighed the outlook for supply and demand following Saudi Arabia’s pledge for extra supply cuts. gold was steady on Tuesday after advancing 0.7% in the previous session. US After Hours GTLB +23.1%, HQY +4.9%, CXM +3% all up on earnings; NVRO -4.6% down following guidance; CDRE -11.1%, BLBD -9.3%, SKWD -5% a few of the names slipping on secondary public offerings.
Nikkei +0.94% Hang Seng +0.25% CSI -0.26% Shanghai -0.46% Shenzen -1.04%
Eur$ 1.0727 CNH 7.1151 CNY 7.1072 JPY 139.42 GBP 1.2456 CHF 0.9047 RUB 80.7263 TRY 21.4330 WTI$ 71.92 -0.32% Gold 1,962.15 +0.01% BTC 25,802 +0.63% ETH 1,818.10 +0.71%
S&P -0.09% Nasdaq -0.08% EuroStoxx -0.19% FTSE -0.22% Dax -0.24% SMI -0.30%
Macro :
- Destruction of Dam in Ukraine Threatens Flooding in Battle Zone
- German Factory Orders Fall Further, Adding to Industry Weakness
Keep an eye on :
Keep an eye on :
- AIR FP : Emirates Needs More Aircraft and Will Order Soon, President Says
- AIR FP : Turkish Air Says It’s About Two Months Away From Mega Jet Order
- AMS SM : Amadeus Announces €433.3 Million Share Buyback Program
- AAPL US : Apple Headset Looks Sleek in Person But Battery Pack Stands Out
- ASML NA : TSMC Tempers Capex Outlook to $32 Billion as Chip Demand Weakens
- BAKKA NO : Bakkafrost Sees 2024-2028 Capex of DKK6.3B
- BMPS IM : BPER Banca Could Be Suitor for Italy’s Monte Paschi: Repubblica
- BARC LN : Barclays Software Banker Markovich to Join Centerview: Reuters
- BATS LN : Philip Morris Reaffirms FY23 EPS Forecast at $5.88 to $6.00
- BATS LN :
- CAV1V FH : Fortum, Caverion Continue Partnership for Finland Hydro Plants
- CSGN SW : UBS hopes to complete the takeover of its crisis-hit local rival, Credit Suisse, within weeks https://t.co/qAu2DYEne5
- DIS US : BAT Maintains FY Revenue in Constant Currency Forecast
- EVK GY : Evotec, Krones, Software AG, Shop Apotheke Europe to Join MDAX
- FORTUM FH : Fortum, Caverion Continue Partnership for Finland Hydro Plants
- GLEN LN : Metals Acquisition to Combine Ahead of Glencore Mine Purchase
- IBM US : IBM to Build European Quantum Data Center in Germany
- IDIA SW : Idorsia in Talks to Sell Asia Pacific Assets for Up to CHF400m
- INTC US : Intel to Raise About $1.5 Billion in Sale of Part of Mobileye
- ICBR3 BZ : Moelis, Cleary Hired by InterCement Bondholders for Debt Talks
- ICBR3 BZ : Moelis, Cleary Hired by InterCement Bondholders for Debt Talks
- BAER SW : Julius Baer Seeks $250 Million From World’s Rich for Buyout Bets
- KRN GY : Evotec, Krones, Software AG, Shop Apotheke Europe to Join MDAX
- KNIN SW : Kuehne+Nagel to Join SMI, SPI 20 Indexes from June 13, SIX Says
- MBLY US : Intel to Raise About $1.5 Billion in Sale of Part of Mobileye
- NOVOB DC : Novo Nordisk, J&J, AstraZeneca Headline 2H Pharma Catalysts
- PIRC IM : ‘Pirelli is in peril’: Pressure rises over Chinese grip on Italian tyremaker - FT
- RNO FP : Renault to Suspend Electric Zoe Production Over Chip Shortage
- SAF FP : Safran in Talks to Buy Raytheon’s $1 Billion Flight Control Unit
- SOW GY : Evotec, Krones, Software AG, Shop Apotheke Europe to Join MDAX
- STM FP : TSMC Expects Capex Closer to $32 Billion, Lower End of Range
- SECARE SS : Symrise Seeks to Acquire all Swedencare Shares at SEK37.50 Cash
- SY1 GY : Symrise Seeks to Acquire all Swedencare Shares at SEK37.50 Cash
- FP FP : TotalEnergies Nigeria Sees NGN143.4b Revenue For July-September
- U US : Unity Software Jumps on Pact With Apple on Vision Pro --> +17%
- ULVR LN : Unilever Hunts for New Chairperson After Replacing CEO
>>> Up
* Anglo American Raised to Outperform at RBC; PT 2,700 pence
* Assa Abloy Raised to Buy at HSBC; PT 305 kronor
* BNP Paribas Bank Polska Raised to Buy at Erste Group
* Burberry Raised to Hold at HSBC; PT 2,200 pence
* Central Asia Metals Raised to Outperform at RBC; PT 245 pence
* H&M PT Raised to 115 kronor from 97 kronor at Citi
* Revenio Raised to Buy at Nordea; PT 36 euros
* Sobi Raised to Overweight at Morgan Stanley; PT 280 kronor
* UPM-Kymmene Raised to Buy at Jefferies; PT 34.70 euros
* Vale ADRs Raised to Outperform at RBC
* Ypsomed PT Raised to 295 Swiss francs at Credit Suisse
>>> Down
>>> Down
* AIB Group Cut to Underweight at Morgan Stanley
* Apple Cut to Neutral at DA Davidson; PT $185
* Deutsche PBB Cut to Sell at Citi; PT 6.10 euros
* Dr Martens Cut to Hold at Peel Hunt; PT 150 pence
* Kone Cut to Hold at HSBC; PT 52 euros
* Kone Cut to Hold at HSBC; PT 52 euros
* Storebrand Cut to Hold at Nordea
>>> Initiation
>>> Initiation
* Airbnb Reinstated Neutral at Wedbush; PT $130
* Berentzen-Gruppe Rated New Outperform at Oddo BHF; PT 10 euros
* Berentzen-Gruppe Rated New Outperform at Oddo BHF; PT 10 euros
* Booking Reinstated Outperform at Wedbush; PT $3,060
* Expedia Reinstated Neutral at Wedbush; PT $116
* Nvidia Rated New Overweight at Guotai Junan Sec
* Renew Rated New Buy at Berenberg; PT 950 pence
>>> Call
>>> Call
* Deutsche PBB Downgraded to Sell at Citi on Real Estate Exposure
* ING Top European Bank Pick at MS, AIB Group Cut to Underweight
* Sobi Appears Set For Growth Inflection, Morgan Stanley Upgrades
* UPM-Kymmene Upgraded at Jefferies Following Underperformance
* UPM-Kymmene Upgraded at Jefferies Following Underperformance
Deal drought raises stakes for boutiques
Bankers expect more consolidation if slump in mergers and acquisitions persists
The slowest start to dealmaking in a decade is expected to unleash further consolidation across the investment banking industry as more boutiques and brokers are picked off by bigger players.
Higher interest rates and a transatlantic banking crisis choked off mergers and acquisitions in the first quarter, almost halving the value of transactions, according to data from Refinitiv.
The drop extended a downturn that began last year and is a sharp contrast to 2021, when booming stock markets and pandemic stimulus drove mergers and acquisitions to a record.
Mizuho and Deutsche Bank have taken advantage of the deal drought in recent weeks, purchasing ailing US investment bank boutique Greenhill & Co and struggling UK broker Numis respectively.
While particular factors were at play in each transaction — Numis, for example, has been hit hard this year by the near-vanishing of initial public offerings in London — bankers say that if the wider backdrop remains grim, more takeovers are likely among firms whose lifeblood is advising on deals.
“It’s a much more difficult year so if somebody provides you a good solution with good economics, people might be tempted to sell,” said one financials banker at a boutique firm.
At the same time, bigger banks are sitting on profits fattened over the past 18 months by rising interest rates and have the chance to diversify their revenues through beefing up their investment banking or wealth management businesses.
“There are other integrated banks that I think are looking at the market opportunistically,” said Nick Millar, a managing director for financial institutions at Lazard, referring to big banks with multiple business lines.
Deutsche Bank said that its £410mn purchase of Numis in late April was part of an effort to bolster its investment banking business in anticipation of a rebound in M&A in coming years. Germany’s biggest bank offered a 72 per cent premium to the Numis share price, which slumped last year.
Japan’s Mizuho, meanwhile, is betting that its $550mn acquisition of Greenhill, one of the first M&A boutiques to go public, will help it expand its investment banking operations in the US. One of Japan’s largest banks late last month agreed to pay more than double a share price that had plunged around 80 per cent from a recent 2018 high.
Rival Daiwa Securities said last week that it would consider buying boutique M&A businesses.
“The volumes have been subdued for a while now,” said Matt Moon, a KBW analyst who covers US boutique advisories. “I do think that the smaller private boutiques are certainly in a position where they’d be considering selling themselves.”
Smaller boutiques focused on providing advice in industries such as tech and private equity may prove attractive as buyers anticipate an eventual pick-up in dealmaking, bankers said.
Sales may also appeal to those advisory firms doing better as they seek to accelerate expansion plans. Last month, Italy’s Mediobanca struck a deal for London-based Arma Partners, a firm focused on the tech sector.
“Arma just had three record years and is sitting on a record pipeline. It’s more about building more, more quickly, which we can’t do on our own,” said Arma’s founder and managing partner Paul-Noël Guély, a former senior banker at Goldman Sachs. “In the United States with the help of Mediobanca and the firepower of Mediobanca we plan to open for business.”
Although the tougher conditions suggest more deals are likely, bankers say that more successful firms, including boutiques, will also seek to expand by poaching key staff.
According to people familiar with the matter, Moelis & Co, the Wall Street firm founded by veteran dealmaker Ken Moelis, has hired about a dozen tech bankers from failed Silicon Valley Bank, reducing its need to make an acquisition.
‘Pirelli is in peril’: Pressure rises over Chinese grip on Italian tyremaker
Rome assesses whether to limit state-owned ChemChina’s voting rights or force it to sell down 37% stake
Many in Italy were aghast when tyre tycoon Marco Tronchetti Provera sold Pirelli, one of the crown jewels of the country’s manufacturing sector, to ChemChina in a $7.7bn takeover in 2015.
Politicians and investors feared Pirelli’s technology would be transferred to its new Chinese parent, now part of state-owned chemicals champion Sinochem. But Tronchetti Provera — once married into the Pirelli family — defended the sale, which allowed him to stay at the helm of the 150-year-old business known as the “Prada of tyres”.
Now he is suffering seller’s remorse amid mounting tensions between the Milan-listed company’s Italian and Chinese shareholders as Sinochem seeks greater sway over the constitution of Pirelli’s board.
As the government of prime minister Giorgia Meloni reconsiders Pirelli’s future under rules that allow it to scrutinise foreign investments in strategic assets, Tronchetti Provera plans to tell a hearing on Tuesday that “the Chinese are dangerous and the future of Pirelli is in peril”, according to people close to the discussions.
Rome is assessing whether Pirelli’s technology has national security implications, and whether to limit Sinochem’s influence by curbing its voting rights or forcing it to reduce what is now a 37 per cent stake after its initial majority holding was reduced in a 2017 initial public offering.
While the original Pirelli sale was not subjected to any national security review, Italy has since expanded its so-called “golden power” rules, widening the ambit of what constitutes a strategic asset to include transportation, sensitive data and technology.
Relations have cooled between Tronchetti Provera and his Chinese partners since ChemChina’s former boss, Ren Jianxing, who clinched the Pirelli deal, described the Italian businessman as his “teacher, older brother and friend”.
Sinochem triggered the current review in March when it notified Rome of revisions to its shareholders’ pact with Tronchetti Provera’s investment vehicle Camfin, which owns 14 per cent of Pirelli, to consolidate its hold over the company the Italian has run since 1992.
Like other tyremakers, Pirelli is developing microchips to broadcast information about tyre usage, maintenance requirements and, potentially, geolocation data.
Experts and some Italian officials are sceptical that such technology will be enough for Rome to limit Sinochem’s shareholder rights or force it to sell down its stake.
“Seen from afar, the sensitive technology argument doesn’t seem strong enough to impose any major restrictions or veto,” said Mario Calderini, an economist at the Politecnico di Milano.
But people close to talks between Pirelli, Sinochem and Rome say the Chinese Communist party’s interference in the company’s management is the bigger issue.
Documents provided to the hearing and seen by the Financial Times show the Chinese government has sought to take more control of business and governance decisions.
In an internal communication dated September 16 last year, an assistant to Sinochem’s general manager told Pirelli executives to inform Beijing in advance about any meeting with foreign government and diplomatic officials — including retired ones and Italians. It also said any company event or visits involving Italian or foreign officials should be organised directly by Beijing.
In a later document dated November 3, Communist party representatives who sit within Sinochem told all the group’s companies, including Pirelli’s Chinese subsidiaries, to abide by guidelines aimed at “fully implementing Xi Jinping’s three-year action plan to accelerate the modern Chinese business system within companies controlled by Sinochem”.
It said “the party’s leadership must be exercised in every aspect of company governance, and the main management issues, as decided by the board of directors, must be examined and discussed” by the companies’ internal party committee.
Sinochem did not immediately respond to a request for comment but people close to the group said the prescriptions only applied to Pirelli’s operations in China. Pirelli declined to comment.
The Pentagon has also meanwhile designated ChemChina a “Chinese military company”, a civilian face of Beijing’s military modernisation drive, a status that Pirelli executives fear could threaten the company’s US market access.
Yet analysts say any move to curb Sinochem’s ownership rights could lead to a backlash in China.
“Undoing an existing deal, eight years later, is different to having a transparent review at the beginning,” said Peter Lu, partner and global head of law firm McDermott Will & Emery’s China practice. “It would create a big image issue for the Italian government once it came out in the Chinese media. Then there could be a popular reaction to move away from Italian labels.”
Relations between Rome and Beijing are already at a sensitive point as Meloni considers withdrawing from China’s Belt and Road Initiative, which Italy joined in 2019 despite fierce disapproval from the US and other European powers.
Adding to the mix the situation of Pirelli — where Tronchetti Provera has been squabbling with his Chinese partners over day-to-day management since Ren’s abrupt 2018 retirement — would further complicate matters.
“The government is in a difficult position,” said one Italian official familiar with the case. “We’re talking about a [listed] company and it would set a dangerous precedent.”
Sinochem told Italian officials it did not plan to take over Pirelli’s management and that the revised shareholder pact had left the Italian shareholder in control of important decisions, according to people close to the Chinese group and an Italian official.
Some investors, however, would like to curb China’s influence given the current geopolitical context.
“China has changed and the spirit of the original agreement under which Beijing was never going to interfere was defied,” said one person close to the company.
ChemChina bought into Pirelli in a season of Sino-Italian liaisons when Chinese companies snapped up stakes in big Italian groups as Italy reeled from the after-effects of its debt crisis.
But amid rising Sino-US tensions, Rome expanded its golden power rules, which define as a strategic asset anything deemed “vital to the wealth, health and safety of the population”, said Paolo Ghiglione, partner at law firm Allen & Overy in Milan. “It’s so broad it could mean anything and everything”
Former prime minister Mario Draghi, for example, used his authority under the law to veto the acquisition of an innovative Italy-based seed company, Verisem, by ChemChina-owned Syngenta. The decision was upheld by the Italian administrative court after Syngenta appealed.
Germany and the UK have also recently moved to block Chinese investments on national security grounds. Italy’s potential intervention eight years after the deal, however, would be the first of its kind in Europe.
Sinochem denied media reports this year that it was looking to sell its Pirelli stake.
In 2018 dealmaker Ren was abruptly ousted from ChemChina as Beijing manoeuvred to merge it with Sinochem. The company’s new English-speaking chair Frank Ning was widely admired by both foreign and domestic business people in China but retired last year and was replaced by petroleum engineer Li Fanrong.
“The big picture in China since Xi took power is ever more Communist party involvement in companies,” said Joerg Wuttke, former chair of the European Chamber of Commerce in Beijing. “I can imagine European partners not liking that.”
Within Pirelli, frictions have emerged over Tronchetti Provera’s pay, which in 2022 was €20.5mn — more than seven times that of the CEO of the world’s largest tyre manufacturer Michelin, according to three people briefed on the discussions.
Succession planning has been another sticking point.
At its upcoming July 31 shareholder meeting, Pirelli is expected to appoint Giorgio Bruno, Tronchetti Provera’s longtime deputy, as its new chief executive, as per the terms of the old shareholder pact that allowed the CEO the right to designate his own successor.
The new shareholder pact gives Sinochem the right to appoint nine board members, up from eight, while cutting Camfin’s board appointments from four to three. Bruno is among those appointed by the Chinese company, though designated by Tronchetti Provera.
Pirelli has warned Rome that Beijing could eventually appoint the company’s CEO if Bruno were to leave. People close to Sinochem said any such move would require a new shareholder pact and a new review by Italy’s government.
The Italian government declined to comment.
For all the facets of the issue, Calderini said Rome had to be cautious in handling the affairs of a listed company in which it has no direct interest.
“A Chinese government interference is not surprising but it transcends Rome’s veto powers under the current rules, [so] if a tangible national strategic interest over Pirelli cannot be proven,” the professor said “any intervention would be interference pure and simple.”