One Equity in €740 million tyre deal

A group of Italian and US financial institutions, including JP Morgan’s private equity arm One Equity Partners, has agreed to buy a stake in Pirelli Tyre for €740 million.

A consortium made up of the Italian banks Banca Intesa, Banca Leonardo Group, Capitalia and Mediobanca, US financial firm Lehman Brothers and JP Morgan’s private equity arm One Equity Partners, have reached and agreement with Italian manufacturer The Pirelli Group to buy a minority 38.9 percent stake in its Pirelli Tyre unit for €740 million ($945 million).

Each member of the consortium will receive a stake of 19 percent each, except Banca Leonardo Group, which will control four percent. The deal allows the buyers to conduct an initial public offering of the shares they have acquired within four years and six months; Pirelli will have the opportunity to buy back the shares if no IPO takes place within that time. Also, after a lockup period of six months, the buyers may sell up to 49 percent of their shares. The consortium may appoint five of the 13 members of Pirelli Tyre’s board of directors under the terms of the deal.

The Pirelli Group will put the proceeds toward its purchase of an additional 9.5 percent stake in Olimpia, a holding company it co-owns with Italian clothing company Benetton Group, bringing its total stake in Olimpia to 80 percent. Through Olimpia, the two companies own 18 percent of the Italian telecom giant Telecom Italia.

The Pirelli Group sold its cable manufacturing division, now called Prysmian Cables & Systems, to Goldman Sachs Capital Partners last year in a transaction valued at €1.3 billion. Pirelli Tyre generated about €3.63 billion in revenue last year, up 12 percent from 2004. It is the fifth largest operator in terms of turnover in the international tyre sector.

One Equity Partners, which was established in 2001, manages a total of $5 billion of private equity investments and commitments for JP Morgan. It has previously invested in Polaroid, Minnesota railroad maintenance company Progressive Rail, pharmaceutical developer Quintiles Transnational in North Carolina, and German packaging company Mauser, among other companies.