Goldman bags Pirelli

Pirelli, the Italian industrials group best known for its tyre manufacturing operations, has sold its energy and telecom cables business to Goldman Sachs Capital Partners. The deal values the unit at €1.3bn (US$1.6bn), including €690m of net debt and €100m of minority interests, although Pirelli will receive €355m in cash.

Goldman Sachs fought off US-based buyout rival Texas Pacific Group in the final round of the auction, which was conducted by JP Morgan, Lazard, Lehman Brothers and Mediobanca on behalf of Pirelli. The auction had been ongoing since November, when 10 firms had expressed interest, including Permira, Apollo and Bain Capital.

Sources close to the deal said Goldman had pipped Texas Pacific to the deal by its price and also by its agreement to keep management on board. Pirelli is also lending Goldman Sachs €135m at 8.5% interest to help fund the deal and will keep the division’s UK pension fund liabilities, which are estimated to be about €95m. The loan has a warrant attached that allows Pirelli to gain 5% of any profits when Goldman exits the business.

Pirelli said it would use its proceeds to increase its stake in Telecom Italia, the local phone operator, which is currently merging its mobile phone subsidiary, TIM. Tronchetti Provera is chairman of both Pirelli and Telecom Italia.

Pirelli said it would buy about 450m shares directly in Telecom Italia or increase its 56.6% stake in an investment vehicle, Olimpia, which owns 18% of the phone company. Pirelli is subject to a near €1bn put option by two Italian banks, UniCredito and Banca Intesa, to buy both of their 4.8% stakes by the end of 2006.

Goldman Sachs has just raised US$8.55bn for its new private equity fund. On the investment front, it has partnered with EQT in a controversial bid for ISS. The private equity duo have offered US$3.8bn for the Danish cleaning company, but the bid is embroiled in legal wranglings instigated by existing bondholders. (See p.11)