Fiat Chrysler Automobiles NV (FCA) plans to spin off the Ferrari super-car brand, underpinning efforts to raise about $4.7 billion as the Italian-American carmaker counters rising debt. The stock soared 19 percent.
FCA will list 10 percent of Ferrari in the U.S. and possibly Europe and plans to complete the deal next year, the company said today in a statement. The sale will raise about $1.15 billion, according to an estimate from Mediobanca.
The company, formed from the merger of Italy’s Fiat and U.S. automaker Chrysler, will distribute its remaining shares in the maker of cars like the $319,000 F12berlinetta to its own investors. With the move, Chief Executive Officer Sergio Marchionne has ensured demand for a planned $2.5 billion mandatory convertible bond as well as the sale of as many as 100 million shares, which would raise about $1.1 billion at current prices.
“Ferrari’s spinoff is the market-moving news investors were looking for,” Vincenzo Longo, a strategist with IG Markets in Milan, said by phone. “Fiat is putting its jewel on the market.”
FCA shares climbed as much as 19 percent to $11.56 and was
up at 11:26 a.m. in New York trading. The stock surged as much
as 18 percent today in Milan.
High Debt
The planned spinoff comes just weeks after Marchionne took on the role of Ferrari chairman after orchestrating the departure of Luca Cordero di Montezemolo, the long-time boss of the super-car brand. Marchionne had repeatedly claimed that Ferrari’s value wasn’t appreciated by investors.
Unlocking that value became critical as FCA’s net industrial debt jumped by 1.7 billion euros to 11.4 billion euros in the third quarter because of “seasonal” cash outflows, the company said. Earnings before interest and taxes in the period amounted to 926 million euros ($1.18 billion), missing the 937 million-euro average estimate of eight analysts surveyed by Bloomberg.
“Marchionne needs every euro he can find to pay for his ambitious expansion goal,” said Erik Gordon, a business professor at the University of Michigan. “Cash comes before pride.”
‘Big Day’
FCA’s board met today for the first time at its new headquarters in London’s West End to discuss FCA’s financing needs as it embarks on a 48 billion-euro investment program that’s set to run through 2018. By expanding the Jeep and Alfa Romeo brands globally, the company aims to increase net income fivefold to about 5 billion euros.
While Marchionne has said the company didn’t need to raise money for the plan, high debt makes it vulnerable to volatility in key markets such as Brazil and Europe. That made Ferrari, which was essentially autonomous, expendable.
“Today is a big day,” Marchionne said in a conference call with analysts. “We are doing the right thing giving Ferrari a proper unique place in the capital market being valued as a luxury-auto maker.”
Including debt that will be transferred to Ferrari, FCA said it will generate about 4 billion euros in benefits from the funding transactions.
Marchionne merged Fiat and Chrysler into the world’s seventh-largest carmaker to better compete with auto-industry leaders such as General Motors Co. (GM), Volkswagen AG and Toyota Motor Corp. (7203) The manufacturer today stuck to its target for 2014 Ebit, excluding one-time items, of 3.6 billion euros to 4 billion euros, and will move on without Ferrari next year, when the spinoff is completed.
It’s a step Marchionne’s been preparing for.
When asked during an interview last month about Ferrari’s role in the group’s strategy, Marchionne said: “Do I think they are essential to the configuration of FCA forever? The answer is no.”
