Italy’s Brembo wary of getting dragged into Pirelli’s China dispute

By Giulio Piovaccari

MILAN (Reuters) – Pirelli investor Brembo is worried about strains between the tyremaker’s Italian and Chinese shareholders and is likely to steer clear of any plan to build an Italian majority in the company, two sources told Reuters.

Last week, the Italian government intervened in a shareholder governance agreement at Pirelli, using so-called “golden power” legislation designed to protect key national assets.

Rome’s move will limit the influence of its largest investor, China’s Sinochem which has a 37% stake.

Brembo, which has a 6% stake in the Formula One tyremaker has its own shareholder agreement with fellow investor Camfin, the investment vehicle of Pirelli CEO Marco Tronchetti Provera, who has led the company since 1992.

The brake maker had been seen by analysts as a building block in an alternative group of Italian shareholders for the company.

But concerns over the potential impact on its business in China could mean it keeps out of the fray.

“Brembo has zero interest to get involved in a fight against Sinochem,” said one source, who declined to be named as the matter is confidential.

China is the third-largest market for Bergamo-based Brembo, after the United States and Germany. Its operations there include four production sites and a joint venture with local partner Gold Phoenix to make brake pads.

Although Camfin owns only 14.1% of the company, its grip has tightened as a result of the measures imposed by the Rome government.

Another source said Brembo’s management has followed recent developments at Pirelli with great attention and wanted to have a “very cautious stance on it”.

“If China should somehow retaliate, it wouldn’t be just Brembo to suffer, but the whole Italian economy,” the source said, referring to the extensive business interests of Italian companies in China.

Carlo Alberto Carnevale Maffè, a strategy professor at Bocconi University’s School of Management said Italian businesses can no longer do without China, which has become one of the world’s largest markets, including in automotive.

“Avoid waking up the dragon and protect your IP: that’s the very first thing to do for Italian companies operating in China,” he said.


Analysts have speculated about a possible long-term plan to merge Brembo and Pirelli, two of Italy’s largest components suppliers in the automotive industry.

Pirelli has a market cap of around 4.5 billion euros ($4.9 billion), broadly in line with 4.8 billion euros for Brembo.

Brembo on Tuesday announced plans to move its legal headquarters to the Netherlands to strengthen its loyalty share scheme in a move aimed at increasing M&A opportunities.

The timing of that announcement and the current turmoil at Pirelli sparked market fears that Brembo could get more deeply involved with the tyremaker, sending its shares down 6.5%.

However, a third source said Brembo’s management was worried by Tronchetti Provera’s strategy to take on Sinochem head on.

“They’ve got much to lose in case of a Chinese retaliation,” the source said. “I doubt they will buy more Pirelli shares, at least not in the short term.”

($1 = 0.9161 euros)

(This story has been refiled to correct the CEO’s name in paragraph 18)

(Reporting by Giulio Piovaccari; editing by Keith Weir and Sharon Singleton)