Italy has stripped Chinese company Sinochem of its influence as Pirelli’s largest shareholder and stripped it of the right to appoint the CEO or set the tiremaker’s strategy, in response to concerns of Chinese state interference.
Italian Prime Minister Giorgia Meloni’s government has cited national security concerns over the potential misuse of Pirelli’s chip technology, as well as interference from the Chinese Communist Party, to justify the new restrictions on Sinochem, which owns a 37 percent stake in the company .
The details of the restrictions come after an unprecedented announcement by the Italian government on Friday night that it would implement a “network of measures to protect Pirelli’s independence”.
The government order, seen by the Financial Times, gives Camfin – the private investment vehicle of Pirelli boss Marco Tronchetti Provera, which owns 14 percent of the company – the perpetual right to appoint the CEO.
Sinochem, which holds its shares through China National Rubber Company, will also be barred from participating in Pirelli’s decisions on “mergers and acquisitions, sales, spin-offs or listings of financial instruments,” according to the order.
According to a previous shareholder agreement between Sinochem and Tronchetti Provera, who has headed the company since 1992, the CEO was entitled to select his successor.
However, with tensions rising between Tronchetti Provera and its Chinese partners, Sinochem had proposed a new deal to repeal this provision. This updated agreement was presented to the Italian government in March, triggering a review.
Italy’s sweeping “golden power” over investments in strategic national assets allows it to veto takeovers, force share sales, or impose other restrictions on foreign investors in certain assets. At the time of Sinochem’s Pirelli investment in 2015, those powers were not as sweeping and the deal was not subject to national safety scrutiny.
On Friday, the government said it wanted to protect Pirelli’s independence and management despite allegations that the Chinese Communist Party was trying to exercise tighter control over its activities.
Sinochem has so far refused to comment on the measures. Lawyers said Beijing is still reviewing the decision and its implications. Pirelli declined to comment but is expected to issue a statement later on Sunday.
A senior Italian official familiar with the case described Rome’s intervention as “minimal” given the possibility that the government could 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 touched,” the official said, noting that Sinochem will remain on Pirelli’s board of directors.
However, Rome has also ordered Pirelli to appoint another Italian national, vetted by the Italian government, to the board to ensure his decisions are followed.
The company has also instructed Pirelli to deny all requests from China’s State Assets Supervision and Management Commission of the State Council, including for information sharing. Also, the two companies must keep their treasury and cash pooling functions separate.
Sinochem was ordered to refrain from any intervention that might create the impression that Pirelli’s decisions were “a consequence of impositions” from Beijing.
Michele Geraci, who as undersecretary at Italy’s economic development ministry pushed for Rome to join Beijing’s Belt & Road initiative, warned that intervention at Pirelli would “irritate” Beijing and increase risks for Italian companies operating in China.
“[China] will use words to express their dissatisfaction and disapproval, but they are smart and do not respond immediately and in a clear, visible manner,” Geraci said. “But if an Italian company has problems in China, they will pay the price for the Italian government’s decision.”
He added that the reasons for intervention did not seem convincing.
“This golden power thing is fueled by the needs of Meloni and [finance minister Giancarlo] “Giorgetti should be seen as anti-China, pro-US and pro-Nato,” he said. “This is not a national security or strategic asset. If you follow a truck driver – where he’s going, how fast he’s going and whether he’s stopping to go to the bathroom, that’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 gamble with the investment rules,” he said.