In response to concerns about Chinese interference, Italy stripped Sinochem’s influence as the largest shareholder of Pirelli. It removed its right to nominate the CEO or to set the strategy for the tyremaker.
The government of Giorgia Melons, the Italian prime minister, has cited national security concerns over the misuse of Pirelli’s chip technology as well as Chinese Communist Party interference to justify the new restrictions on Sinochem. Sinochem owns a 37% stake in the company.
Details of the restrictions follow an announcement made by the Italian government Friday night, which was unprecedented. The Italian government announced that they would implement a “network” of measures in order to protect Pirelli’s independent.
The order of the government, which is known, grants Camfin, the private investment vehicle owned by Pirelli’s chief executive Marco Tronchetti Provera and which owns 14% of the company, the right indefinitely to nominate the CEO. According to the order, Sinochem will be prohibited from participating in any decisions regarding Pirelli “mergers, acquisitions, spin-offs, or listing of financial instruments”.
A previous shareholder agreement between Sinochem, which has been run by Tronchetti since 1992, and the CEO, entitled the CEO to choose his successor.
Sinochem, however, had proposed a revised agreement that would eliminate this provision amid the rising tensions between Tronchetti-Provera and their Chinese partners. The updated agreement was submitted to the Italian government for review in March.
Italy’s “golden powers” allow it to restrict foreign investment in strategic assets, veto takeovers or force stake sales. Sinochem’s Pirelli deal in 2015 was not subjected to a national-security review and these powers weren’t as expansive.
The government announced on Friday that it wished to protect Pirelli’s management and independence, despite allegations that the Chinese Communist Party was trying to tighten its control.
Sinochem, whose lawyers claim Beijing is still reviewing its decision and implications, has declined to comment. Pirelli has declined to comment, but will likely release a statement on Sunday.
An Italian official who is familiar with the case said that Rome’s involvement was “minimal”, considering the possibility that the government might have ordered Sinochem, or its parent company Pirelli, to sell their entire shareholding.
Sinochem retains its seat on Pirelli’s Board.
Rome also ordered that Pirelli name another Italian citizen to its board, who would be vetted and approved by the Italian government. This was to ensure the rulings were followed.
Pirelli was also instructed to reject any requests made by China’s Assets Supervision and Administration Commission, a state-owned entity. This includes requests for sharing of information. Both companies must also keep their cash pooling and treasury functions separate.
Sinochem was ordered to refrain any action that could suggest Pirelli’s decision is “a result of impositions” by Beijing. Michele Geraci, who as under-secretary in Italy’s ministry of economic development pushed for Rome to join Beijing’s Belt & Road Initiative . warned that the intervention at Pirelli would “irritate” Beijing and the risks that Italian companies in China face
Geraci stated that “[China] may show its displeasure and disapproval with words, but it is smart enough to not act immediately and in a visible, clear way.” “But if an Italian company faces problems in China, the Italian government will be held responsible.”
He said that the reasons for his intervention were unconvincing.
He said that Meloni, and [finance Minister Giancarlo] Giorgetti wanted to be perceived as anti-China and pro-Nato. This is not a strategic or national asset. It’s not a secret if you track a truck driver – where he drives, how fast, and if he uses the bathroom.
He said that it would also send a negative signal to other investors. He said that the rest of the world would see an Italian government who played dice with investment rules.