How Pirelli Pulled Off A 180 Degree Turnby
When Marco Tronchetti Provera needs a break from running Italian tire and cable giant Pirelli, he leaves his Milan offices and heads for the Cauris, the 18-meter sloop he keeps moored in Portofino. His closest friends say Tronchetti's real nature comes out when he and his crew are in a tight race. "Despite the tension, he never loses his cool," says one sailing buddy. "You'll never see him lose his temper or shout."
That is how Tronchetti runs Pirelli. Since taking the helm of the company in 1992, just as it was reeling from a foiled raid on Germany's Continental Tire, the soft-spoken Tronchetti has quietly steered Pirelli from near-bankruptcy to strength (chart). In September, Pirelli reported a doubling of net profits in the first six months of 1995, to $70 million, and about a 20% sales increase, to $3.5 billion. While Italy's weak lira helped boost Pirelli's exports and market share, analysts give most of the credit for the transformation to Tronchetti's three-year shakeup. Tronchetti, says Italy analyst Mike Peciti of London's James Capel Inc., "has done an exceptional job of turning Pirelli around."
Tronchetti, 47, is a leading example of the younger, harder charging managers now replacing the old guard at many big Italian industrial groups. Born into Italy's industrial aristocracy, he earned an MBA at Milan's prestigious Bocconi University and went to work in his family's energy company, where he started a container ship business. His 1978 marriage to Cecilia Pirelli, daughter of Pirelli Chairman Leopoldo Pirelli, opened the door to his becoming a partner in the holding company controlling Pirelli in 1986. Although he and Cecilia later parted ways, Tronchetti was appointed Pirelli's managing director for finance and administration in 1991--and began to look like a decent bet to replace the aging Leopoldo.
SHAREHOLDER COUP. He got his chance after shareholders grew dissatisfied with Leopoldo's faltering efforts to expand the company. Pirelli had fallen behind bigger groups like France's Michelin and Japan's Bridgestone Corp. But Leopoldo's attempted raids on Firestone Inc. in 1988 and Continental in 1990 backfired, costing Pirelli close to $300 million. Those debacles prompted Pirelli's main shareholders, led by Milan investment bank Mediobanca, to push Leopoldo aside in favor of Tronchetti. Insiders say he had argued that Pirelli had to get its own house in order before considering acquisitions.
After becoming CEO, Tronchetti lost no time housecleaning. He set up a new management team, and they worked overtime to unload dozens of companies that Pirelli had acquired in the 1960s and 1970s in a feverish bid to diversify out of its maturing tire and cable markets. Tronchetti orchestrated a fire sale of properties, ranging from sneaker factories to apparel units to big chunks of downtown Milan real estate, halving the group's $2.5 billion debt load and cutting the workforce by 25%, to 39,000.
Tronchetti's strategy has been to refocus management strength on Pirelli's core businesses. "If you manage mature businesses well, you can make money," he says. Now, after five years of heavy losses, Pirelli is finally earning money on tire sales. Having cleaned up the act in Europe, Tronchetti wants to improve results at troubled New Haven-based Armstrong Tire Corp., which Pirelli bought in 1988. New managers dispatched last May have orders to make the unit break even by 1997.
FAST RUBBER. Meanwhile, Tronchetti is working to boost market share. He is concentrating on high-performance tires, the fastest growing and most profitable segment of the European tire market. Originally meant for sports cars, the low and wide tires now make up about 25% of all European tire sales, with Pirelli leading in the segment. Its new P6000 tire has been a runaway success and was accepted by 11 car manufacturers in Europe. Overall, Pirelli is No. 2 in Europe after Michelin, with 12% of the market.
In cables, which account for about half of Pirelli's $6.5 billion in sales, Tronchetti is repositioning the group as a major telecommunications player. Already neck and neck with Alcatel Alsthom as top international supplier of fiber optic cable, Pirelli is researching technology to vastly increase the amount of data that can be transmitted with such cables.
What's next? There's some talk in Milan financial circles that Pirelli could spin off its revitalized tire division to raise money for further moves in higher-growth telecom. For now, Tronchetti says he aims to expand the tire business into East Asia, where it has been weak. But if a suitor comes along, analysts suggest, he may ignore old industrial traditions and steer Pirelli through yet another dramatic turn.