Pirelli to be valued at €6.5bn as Formula One tyre make returns to stock exchange

Italian tyre maker Pirelli has priced its initial public offering (IPO) at €6.5 (£5.74) per share, ahead of its return to the stock market on 4 October.

While the €6.5bn valuation of the company is lower than what most analysts expected, it is enough to ensure Pirelli's will be one of the largest IPOs in Europe this year.

The company, which is famous for making tyres for Formula One cars, will list approximately 40% of its share capital on the Milan Stock Exchange, where it had traded from 1922 up until two years ago.

In March 2015, shareholders of the Milan-based company accepted a €7.3bn offer from ChemChina and Pirelli was de-listed in November of the same year, after the former completed one of the most high-profile deals carried out by Chinese companies in Europe.

While the listing price values the company less than ChemChina paid for it two years ago, analysts praised the wisdom of the deal, highlighting Pirelli had undergone a significant change over the last two years.

Since it was de-listed in 2015, the 145-year-old company has spun off its low margin industrial tyre assets into the company's Chinese operation, while the more lucrative consumer tyre business will be re-listed in Milan.

By the end of the decade, Pirelli expects premium tyres to make up approximately 63% of its sales.

Pirelli is confident to achieve annual growth revenue of approximately 9% between now and 2020, which would represent a significant improvement, compared to the 6% rate of growth it recorded before 2015.

Even more impressively, a 9% increase in annual revenue would be almost three times higher than that of the worldwide tyre industry as a whole.

The Italian company is more profitable than Michelin and Continental, its French and German counterparts, but at 20%, its core profit margins are lower than those of high-end Finnish rival Nokian, which is close to 30%.

Following the share sale, Pirelli boss Marco Tronchetti Provera and banks UniCredit and Intesa Sanpaolo will see their share in Marco Polo, the holding company that controls Pirelli, cut from 22% to between 10% and 12%.

Meanwhile, investment fund LTI and Russian energy giant Rosneft will see their stakes trimmed to approximately 5% and 6.6% respectively.