Pirelli vs Continental

Résumé du document

Around 1990, due to a substantial number of tyre manufacturers on the market, Pirelli SpA though of taking over the German tyres company named Continental AG. And after a long merger attempt which lasted more than two years, it finally ended with the sale of the Continental shares, owned by Pirelli, to German institutions. This case focuses on the fact that many factors can affect a decision-making for a merger, such as specific laws or various pressures from main actors on the market. The case study will try to retail the story of Pirelli's takeover attempt, the reasons for its final failure, but also the importance of the shareholders' meeting in the decision-making. This case deals with the severe competition within the global tyre market which really begun during the late 1980s, with the carry out of transnational mergers between several competitors. In 1978, the five biggest tyre manufacturers owned 55 % of the tyre global market. Because of an over-capacity in this market, merger seemed to be essential for companies such as Pirelli, Continental, in order to obtain more market shares and therefore enhance their position on the global market. One of the best ways to convince small companies to merge is to keep low prices until these small manufacturers cannot afford the costs anymore and decide to be bought out by one of the major competitors.

Extraits

[...] The other half of the supervisory board was made up of employees and trade-union representatives, all chosen by the employees themselves. Among other things, the members of the supervisory board were empowered to seek an extraordinary shareholders' meeting to express whatever that could be essential for the well-being of the company. One of the most important things is that the shareholders could dismiss the members of the supervisory board, who needed more than of the votes to block any attempt from the shareholders. [...]

[...] The elimination of the voting rights limitation. The management board in good conditions to merge with Pirelli After nine hours of speeches, the shareholders could finally make their decisions about the subjects written above. Regarding to the elimination of the voting rights restriction of the votes agreed with this resolution. As regards the resolution Pirelli declared to press that the shareholders related to Pirelli would abstain from voting, due to his wish to carry out a friendly merger. The abstention rate was around and among the remaining shareholders, only of the votes supported this merger attempt. [...]

[...] The friendly merger offered by Pirelli was no longer at issue due to a political environment in favour of Continental AG's interests. The reasons of the failure There were several reasons of the failure of the merger and notably the influence of legal and political environment. Firstly, Urban Horst, Continental's Chief Executive, rejected Pirelli's offer opting for Continental's “stand alone policy”. Secondly, after analysing the merger proposal of Pirelli, several reasons for not merging came up such as an overestimated price for the purchase of Pirelli ( 1.85 to 2.25 billion dollars) compared to the market value. [...]

[...] Perhaps Pirelli PTH's managers could have informed themselves about German laws in order to avoid few complications. It also seems to be really important for Pirelli PTH to carry out reliable expectations in case of merger for maintain good relationship with the other company. Political aspects as well as business relationship (consequences) have to be taken into account to decide whether or not merge To conclude, perhaps Pirelli PTH should have focused on different strategic ways to become one of the global players of the tyre market, instead of persevering to tempt to merge or secretly gaining control of Continental AG. [...]

[...] Pirelli vs Continental Contents Contents 2 Introduction 2 Summary The reasons why Pirelli wanted to merge with Continental? The shareholders meeting The reason of the failure 7 Conclusion 8 Introduction Around 1990, due to a substantial number of tyre manufacturers on the market, Pirelli SpA though of taking over the German tyres company named Continental AG. And after a long merger attempt which lasted more than two years, it finally ended with the sale of the Continental shares, owned by Pirelli, to German institutions. [...]