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Pirelli vs Continental

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  1. Introduction.
  2. Summary.
  3. The reasons why Pirelli wanted to merge with Continental?
  4. The shareholders meeting.
  5. The reason of the failure.
  6. Conclusion.
  7. Bibliography.

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. [...]

[...] Despite these negative conclusions made by Continental AG about a possible merger Pirelli PTH, a co-operation is offered by Continental AG, asking Pirelli PTH to analyze in depth the consequences of possible co-operation. Thereafter, in 1991 Pirelli tempted to gain control of Continental by acquiring up to of Continental shares without informing the company, related to a German law. As Pirelli did not reveal that it controlled over 25% of continental's equity, according to a German law, hence the district court of Hanover ruled later that Pirelli should not have voted its shares at the extraordinary shareholders meeting and should have only voting rights. [...]

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