One Way to Beat the Yanks

Seeking to create corporate combines with enough muscle to compete against U.S. giants, Europe's businessmen are rapidly pushing multinational alliances. The trouble is that there is still no standard body of European corporate law, and melding companies across borders can create enough legal and tax problems to enrich a generation of lawyers. To get around that, managements are busy figuring out clever new combinations that stop short of mergers.

This week Europe's biggest and most promising combination since World War II will take place. Britain's Dunlop Co. Ltd. and the Italian-based Pirelli Group will get together to form the world's third largest tire company, which will have 180,000 workers in 210 factories and sales of $2.3 billion, based on 1969 levels. When the totals for 1970 are in, Dunlop-Pirelli may well roll past Firestone, the No. 2 tiremaker, and gain ground on front-running Goodyear. Both American firms have been hurt by the General Motors strike and by economic sluggishness in the U.S.

Right Angle. Sir Reay Geddes, chairman of Dunlop, says that the future of his company lies "in creating a European-based multinational group on a truly American scale." Pirelli's management, vexed by labor troubles at home, sees the tie-up as a way to expand in the U.S. and in other markets. Both partners hope to capitalize on Pirelli's expertise in radial tires. The radial, with the cords in its fabric at right angles to the direction of wheel turn, lasts longer than softer-riding conventional tires, which have the fabric running diagonally in crisscross layers.

In the Dunlop-Pirelli match, unlike most European marriages, no money will change hands. Dunlop and Pirelli will exchange shares in subsidiaries formed specially for the deal, so that each owns 49% of its partner's European operations and 40% of the other company's overseas business. The two firms will retain their own trademarks, home offices and operating capital, but will pool much of their purchasing and research efforts.

Dunlop-Pirelli is a textbook case of comparative advantage. Of the 26 countries in which one or the other makes tires, they overlap only in Britain and Germany. The two chief executives --Geddes and Leopoldo Pirelli--are also a good match. Both are somewhat reserved and prone to understatement, and both have ancestral ties to their companies. Geddes' father was once chairman of Dunlop, and Leopoldo Pirelli is a member of the third generation of his family to run his company. Multinational management can present gummy problems, but Dunlop and Pirelli are determined to make a go of it. As Leopoldo Pirelli says: "This is a marriage from which there is no turning back."

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