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.
[...] In 1992, Pirelli still held around of Continental voting equity but Ulrich Weiss ruled that Pirelli and its associates would get only of the voting rights. To conclude, Pirelli never succeeded to acquire Continental and both companies still remain in a very hostile environment which is the global tyre war. reasons why pirelli wanted to merge with continental? First of all, after an unsuccessful period in the merger race during the 1980s, Pirelli needed to find a company to merge with. [...]
[...] After this spate of transnational mergers, the five largest players shared up to of market shares, including Continental and Pirelli with respectively and On the one hand, Pirelli is held by a collectivity comprising Pirelli's family and several other major shareholders, which represent of the total equity, enough to control the company. Despite his fifth world position, Pirelli manufactured in nine countries from three different continents (Europe, USA, South America), and used licensing to spread his trade mark. On the other hand, Continental was made up of both a supervisory board and an executive board, which seemed to be a good managerial organization, with new tasks for the directors, but also less security for the latter. [...]
[...] Pirelli tried to convince Continental thanks to his production of premium quality performance car tyres. Geographic spread In USA, this merger would also involve an improvement in their offer with a combined marketing strategy. As Bianchieri said, makes a very complete package - full brand, full product, full segmentation”. Moreover, Continental's sales were concentrated in the north of the Alps whereas Pirelli controlled the south: a merger would serve their interests in the whole Europe. In South-American market, Pirelli would introduce Continental's brand thanks to two plants already implemented in Brazil and Argentina. [...]
[...] The shareholders meeting Continental AG was an equivalent of a British public company which means that the management organisation is divided in two parts: the supervisory board and the management board. On the one hand, the supervisory board which was represented by the shareholders who looked after the management of the company in order to ensure the well-being of the company. On the other hand, the management board, which was appointed by the supervisory board, had got several obligations regarding to the results, and therefore the directors had to plan a business strategy. [...]
[...] Continental AG's managers analysed the abstention rate (36 lower than expected, as a real lack of support for Pirelli among Continental AG's shareholder. Moreover, the resolutions 1 and 2 were heavily accepted be the shareholders, so that the rule that a simple majority is required to remove a member of the supervisory board. This extraordinary shareholders' meeting could be considered as a failure for Pirelli with a view to his merger objectives and the perseverance of Continental's shareholders to protect their company from Pirelli's attempts. [...]
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