Milan, Italy — China National Rubber Co. (CNRC) and Pirelli & Co. SpA have approved the transfer of ownership stakes in their respective consumer and industrial tire activities to each other.
The transaction, according to Pirelli, will boost its available annual consumer tire capacity in China by about 75 percent to 12 million units.
The asset swap is in line with terms of the merger to which the firms previously agreed.
CNRC has agreed to transfer to Pirelli an 80-percent ownership stake in the car tire activities of its Aoelus Tyre Co. Ltd. unit. Pirelli plans to transfer a 10-percent ownership stake in its industrial (truck and farm tires) business to CNRC.
The agreements also cover the formalisation of a license contract between Pirelli Tyre and Aeolus for the technology of the industrial segment, Pirelli said in its first-half financial statement.
The deal also calls for Aeolus to pay Pirelli a 1-percent royalty on sales in 2017 and 2 percent annually starting in 2018.
Pirelli’s industrial tire business generated sales of $1.2 billion last year, but revenue through the first half of 2016 was down 21.6 percent on 7.3-percent lower volume and the negative effects of foreign exchange changes.
The business is considered the market leader in Latin America for truck and agricultural tires, with capacities at two plants in Brazil, and also a top player in Europe, the Middle East and Africa, with production at plants in Turkey and Egypt.
Last year the company produced 4.3 million truck tires and 350,000 agricultural tires.
Aeolus produces passenger and light truck tires at a plant in Jiaozhou, Henan Province.
In a presentation to investors, Pirelli said the Jiaozhou plant will focus on Tier II and lower-end Pirelli-brand products, while its existing factory in Yanzhou will focus exclusively on premium Pirelli-brand products.
Pirelli also said the deal will increase its distribution coverage in China through Aeolus’ networks, will open the possibility of OE contracts with Chinese vehicle makers in the small SUV sector and improve its “go-to-market” through improved coverage of both Tier I and Tier II.
The closing of the deals is expected in the coming months, Pirellis said, once the necessary government authorisations have been obtained and other details agreed to.