Fiat Chrysler to spin off Ferrari
Fiat Chrysler Automobiles CEO Sergio Marchionne is proving the newly merged automaker will act swiftly to address market concerns.
FCA on Wednesday announced plans to bring in 4 billion euros (about $5 billion) worth of capital into the car company through an influx of new stock, bond-selling and spinning off Ferrari to raise money for its ambitious $61 billion growth plan.
"We have dealt with a lot of residue and I think we are creating a sound basis for the execution plan going forward to '18," he said Wednesday during a call with the news media and financial analysts. Marchionne expects the capital to be available in the next nine months.
The plans were announced as FCA reported third-quarter earnings of 188 million euros ($239.5 million), its first quarterly earnings since the company formed and was listed on the New York Stock Exchange on Oct. 13. The company also announced it will offer up to 100 million FCA common shares to the public by the end of 2014 and the issue of $2.5 billion in convertible bonds.
Marchionne called Wednesday a "cleanup day," as the world's seventh-largest automaker addressed capital concerns and criticism that Ferrari could lose its uniqueness under the FCA umbrella dominated by mainstream brands.
FCA will conduct a public offering of Ferrari shares equal to 10 percent of FCA's outstanding shares.
The rest of FCA's remaining Ferrari shares (80 percent of the company) will be distributed to FCA shareholders for free; the offering is expected by June 2015. The remaining 10 percent of Ferrari is owned by Piero Lardi Ferrari, a son of company founder Enzo Ferrari.
"I think we are doing the right thing by giving Ferrari a proper, unique place in the capital markets to be evaluated and valued as a luxury automaker," he said Wednesday during a call with the news media and financial analysts. "This was an act of purification on our side."
Shares of FCA jumped 17 percent Wednesday morning to as high as $11.56 per share before leveling out midday. Stock closed Wednesday at $10.85, up 12 percent from Tuesday's $9.72 close.
Ferrari shares are expected to be listed in the U.S. and possibly a European exchange. That would be similar to FCA's shares that are primarily listed on the New York Stock Exchange with a secondary listing in Milan.
Ferrari will be valued by Wall Street better than FCA, Marchionne predicted.
"It is drastically different from the evaluation that is being applied to FCA today and, for that matter, any other carmaker worldwide," said Marchionne, who will remain chairman of Ferrari. "I think we will all be pleasantly surprised."
Analysts say Ferrari has been a self-sustaining, financially independent unit within Fiat SpA and now FCA and it seems unlikely that will change anytime soon.
"It has been some time coming, but Marchionne and FCA have now bowed to expectation and intend to list Ferrari," said IHS Automotive Principal Analyst Ian Fletcher. "Unsurprisingly, it has been roundly welcomed by investors with a significant spike in its share price, no doubt helped by the planned hand out of shares in the company to its investors."
Brokers estimate Ferrari to be valued between 3.3 billion euros ($4.2 billion) and 5.4 billion euros ($6.9 billion), with a median of 4.3 billion ($5.5 billion).
Ferrari sells roughly 7,000 cars a year. In the third quarter, FCA sold 1,612 Ferraris, up 8 percent from the same period a year ago.
Kelley Blue Book senior analyst Karl Brauer said the Ferrari spinoff shows "Marchionne is eager to secure FCA's aggressive growth plan by any means necessary."
Marchionne said FCA remains "bullish" and on track for its ambitious five-year plan that includes exporting Jeeps globally, growing net profit five-fold and increasing sales 60 percent by 2018.
Overall, FCA's third-quarter earnings of 188 million euros ($239.5 million) were down 1 million euros ($1.27 million) compared to the same time period a year ago.
Marchionne called the earnings "a decent set of results" that puts the newly merged automaker on track to deliver on its full-year targets, including a profit of 600 million euros ($763 million) to 800 million euros ($1.2 billion) in 2014.
Through the first nine months of the year, FCA net income was 212 million euros ($270 million).
FCA Chief Financial Officer Richard Palmer said "all regions are going to contribute to the growth" of the company.
Profits in North American and Asia-Pacific drove FCA in the third quarter. In North America, which is primarily Chrysler Group, the company earned 549 million euros ($700 million) before interest and taxes, a 13 million euro increase ($17 million). In Asia-Pacific, the company earned 169 million euros ($215 million), up 70 million euros ($89.2 million) from a year ago.
Third-quarter earnings were hindered by losses in Europe that were nearly cut in half from last year but still in the red at a loss of 63 million euros ($80.4 million) and a 118-million euro ($150.5 million) decrease to 51 million euros ($65 million) in Latin America.
FCA revenues for the third quarter were up 14 percent to 23.6 billion euros ($30 billion).
Worldwide shipments were 1.1 million units, a 10 percent increase driven by strong sales in North America.
FCA — formed by Chrysler's former parent company Fiat SpA merging into the new company on Oct. 12 — is scheduled to release separate third-quarter earnings for Chrysler on Nov. 5.
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