Pirelli's relationship with Russia threatens Western national security, says Grizzly Research

(Sharecast News) - Short-seller Grizzly Research claimed in a note on Thursday that Italian tyre maker Pirelli could be making more money from its Russian operations than it is disclosing and that its "secret dependence and close relationships" with the country pose a Western national security threat

Grizzly Research published a research report stating that Russian filings imply that 10% of Pirelli's net profits come from its Russian operations. Grizzly noted that Pirelli itself reports only that about 6% of its revenues come from the Russia, Middle East, Africa, and India region combined, "leaving an apparently misleading impression about the real economics".

The short-seller said that looking at Pirelli's reporting of the Russian operations alongside other regions, a former Big Four auditor told the company: "In my experience, disclosure that narrows without explanation almost always tells you the underlying numbers moved in a direction management would prefer not to highlight."

Grizzly suspects this growth in the Russian business may be driven by demand from the Russian invasion of Ukraine.

"Through our undercover investigation, for instance, we found that the tyre centre in occupied Ukraine listed on Pirelli's website serves the Russian military, and that Pirelli's employees, aware that the buyer was purchasing tires for Russian forces fighting in Ukraine, shared contact details for placing an order," it said.

Grizzly said it is concerned that Pirelli's relationship with the Russian state may pose security risks for the West.

"According to our research, Pirelli's Kirov factory operates in an industrial complex that also houses a Russian state-owned tire producer controlled by a military research institute," it said.

"That same institute holds a 25% stake in much of Pirelli's Russian business. The only other minority shareholder, with a 9.99% stake, appears to have very close ties to the institute. Pirelli seems to share critical infrastructure with the institute's factory, and we are concerned that, through this proximity and its corporate ties to the Russian state, Russia could gain access to technology that is mission-critical for advanced military equipment."

Pirelli rejected the accusations. It said in a brief statement: "The content of the note from Grizzly Research does not reflect the truth. Pirelli reaffirms, among other things, that it does not produce tyres for military use, as is already known and was communicated long ago to the relevant Italian authorities.

"To protect all shareholders and the company's good name, Pirelli has given a mandate to Gatti Pavesi Bianchi Ludovici Studio Legale Associato to take action in all jurisdictions against those who have spread this false information."

At 1105 BST, the shares were up 0.5% at �6.17, having tumbled more than 10% earlier in the session.