Pirelli shares fall 13% after shortseller accused of ties to Russian army

Shares of Italian tire maker Pirelli collapsed by 13% at the opening of trading in Milan on June 4 after U.S. activist short-seller Grizzly Research accused the company of hiding real revenues from Russia and indirectly supplying the Russian army. Quotes fell to their lowest in a year.

Pirelli rejected these accusations and instructed lawyers to "take action in all jurisdictions against those who spread this false information" to "protect all shareholders and the good name". As a result, by mid-day, the company's securities recovered their losses and traded 0.7% below the previous session's closing level. Since the beginning of the year, its capitalization has increased by about 4%.

Grizzly Research, which holds a short position in Pirelli shares, argued that the growth of its business in Russia could be driven by demand related to the war in Ukraine. The short-seller claimed discrepancies between Pirelli's publicly disclosed earnings and the company's Russian market data that the investigators found.

After the Russian-Ukrainian military conflict began in 2022, many major tire makers, including Michelin, Goodyear and Bridgestone, withdrew from Russia, going for large-scale asset write-downs. Pirelli said at the time that it would stop further investments in the country and limit itself to only those projects needed to fund salaries and social services for employees, CNBC recalls. Reports cited by Grizzly Research show that the company's operations in Russia generate 10% of its net profit. Shortist contrasts this with official figures, according to which the share of all revenue in the macro-region, which also includes the Middle East, Africa and India, is only 6%.

"We discovered that a dealership in occupied Ukraine listed on Pirelli's website serves the Russian military, and that Pirelli employees, knowing that a customer was purchasing tires for Russian troops fighting in Ukraine, shared contact information to place the order," Grizzly's investigation said.

Another example cited by short-sellers is related to the Pirelli plant in Kirov. According to Grizzly, it shares infrastructure with the tire maker, which is run by a research institute of the Rostec state corporation. The same research institute owns a 25% stake in part of Pirelli's Russian business, and another 10% or so is controlled by a related minority shareholder, the text says. The authors of the investigation fear that because of this proximity, the Russian side may gain access to critical Western technologies for the creation of advanced weapons.

Pirelli responded that "the content of the Grizzly Research memo is not true" and, in particular, it does not produce military tires.

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