Ferrari Spinoff Puts Focus on Marchionne’s Fiat Chrysler Revamp – Bloomberg

Posted: Monday, January 04, 2016

Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne is about to find out what it’s like to run the business without the fat profits from Ferrari supercars.

Fiat Chrysler on Sunday distributed its remaining 80 percent stake in the producer of the $324,000 Berlinetta coupe. Investors received one Ferrari share for every 10 Fiat Chrysler shares they owned. Ferrari NV, which started trading on Monday in Milan following its October listing on the New York Stock Exchange, is now independent and ranks as the most profitable stand-alone automaker, according to Evercore ISI.

Losing Ferrari’s cash flow will put the focus on Marchionne’s 48 billion-euro ($52.1 billion) revamp of Fiat Chrysler. Slowing demand in China and a drop in Brazil’s car market prompted cutbacks in the plan, with the Alfa Romeo and Maserati divisions putting off new models as the spending emphasis shifts to expanding the Jeep sport utility vehicle brand.

“Fiat Chrysler has now a very clear scope of activities,” Chairman John Elkann, head of the Agnelli family, which controls the company, said in an interview with Bloomberg TV. “It has now a very ambitious plan ahead.”

Doubts have been growing about Marchionne’s ability to reach his targets, including increasing deliveries about 50 percent by 2018. Fiat Chrysler declined 2 percent to 8.40 euros at 12:53 p.m. in Milan, valuing the company at 10.8 billion euros. Its market capitalization prior to the Ferrari spinoff was about 16.7 billion euros. Ferrari traded at 43.48 euros, valuing the company at 8.2 billion euros.

“Investors are worried that the value of Fiat could be much lower without its crown jewel,” said Vincenzo Longo, a strategist at IG Group in Milan.

Fiat Chrysler was created in the mid-October 2014 merger of Turin, Italy-based Fiat SpA and U.S. partner Chrysler Group LLC, and its stock in Milan rose 69 percent between when the Ferrari spinoff was announced two weeks later and its completion Sunday. Fiat Chrysler sold 10 percent of Maranello, Italy-based Ferrari in an initial public offering two months ago. Piero Ferrari, the son of founder Enzo Ferrari, owns the remaining 10 percent and plans to keep it.

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To entice investors, Marchionne, who’s also Ferrari’s chairman, has been positioning the supercar manufacturer as a creator of high-end products, rather than as an automaker. Ferrari is valued at 26.5 times estimated 2016 profit, in line with figures for French fashion company Hermes International SCA. By comparison, Fiat Chrysler fetches 8.6 times earnings and General Motors Co. sells for 6.4.

The supercar division accounted for 12 percent of Fiat Chrysler’s profit before interest and tax in 2014. Marchionne will now focus on the five-year reorganization of the London-based parent company after GM rebuffed his bid to make the U.S. competitor a partner to share investments.

Marchionne, who will give an update of the plan at the end of January, has so far stuck to his 2018 targets, including boosting sales to 7 million cars. That’s almost 2 million more than market researcher IHS Automotive’s estimates for Fiat Chrysler deliveries.


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