Tyremaker Pirelli has given up on what sources say was an initial valuation goal of €9 billion ahead of its return to Milan’s stock market next month, after several fund managers baulked at paying such a lofty price.
The maker of Formula 1 racing tyres said on Thursday its owners would sell up to 40 per cent of the company within a price range of €6.30-8.30 per share, giving it a valuation of between €6.3 billion and €8.3 billion.
Controlling shareholder China National Chemical Corporation (ChemChina), which took over Pirelli two years ago and delisted it, and two other shareholders had been looking for a premium valuation of up to €9 billion, sources familiar with the matter have said.
However, fund managers raised doubts, citing Pirelli’s relatively high debt, complex governance structure and risk that the share price could be hit by a wave of selling once a lock-up period for one of the existing minority shareholders expires.
At the top of Pirelli’s price range, ChemChina and the two minority shareholders will raise up to €3.3 billion in the IPO, assuming Pirelli’s bankers take an over-allotment. That would make it Europe’s second largest offer this year behind the €3.4 billion raised by Allied Irish Banks in June.
The price range represents a multiple of 11.3-14.9 times Pirelli’s forecast 2018 earnings, according to estimates published by Banca IMI, a global coordinator for the IPO. Banca IMI valued Pirelli at between €7.6 billion and €8.7 billion.
But four Italian fund managers said the group was worth €6.6 billion to €7.5 billion or 11.9-13.5 times 2018 earnings.
That would put Pirelli above rival tyremakers Michelin and Continental but short of the industry’s most highly valued manufacturer, Finland’s Nokian.
Angelo Meda, head of equities and portfolio manager at Banor SIM, which manages €4.8 billion in assets, trimmed his maximum valuation after the price range was released.
“I am not going to buy it if it’s valued at more than €7 billion,” he said.
One large London-based investor who has looked at Pirelli’s offer said the group was a good business but questioned whether it deserved a premium valuation.
Pirelli declined to comment.
Giacomo Tilotta, portfolio manager at AcomeA SGR, also cut his valuation, saying Pirelli was attractive at around €6.6-7 billion compared with €7-7.5 billion previously.
He said debt was the main reason why the company should not carry a hefty premium over peers. Pirelli’s net debt is 3.1 times estimated 2017 core earnings, compared with 0.8 times for Michelin in the first half of 2017, while Nokian is cash positive. Pirelli, established in 1872 and one of Italy’s best-known corporate names, said it would list in the first half of next month. It is expected to set a listing date of October 4.