Fiat Chrysler’s (FCAU) Ferrari IPO Price Range Identified – Business Finance News

Posted: Sunday, October 11, 2015

Fiat Chrysler Automobiles NV’s (NYSE:FCAU) Ferrari is expected to have its Initial Public Offering (IPO) in a few days. According to Securities and Exchange Commission (SEC), the company plans to issue about 17.2 million shares in the market. The company is confident over investors’ and a spike in its valuation.

According to estimates generated by investor road shows and meetings, the company believes that the total market capitalization will range between $824 million to $893million. This means that on average, the company will generate about $48-$52 from selling one share to the ordinary public.

It is estimated that Ferrari will generate positive cash flows for its shareholders in the future. According to valuation from investment banks, Ferrari will range from $9.1billion-9.8billion. According to the early prospectus circulated, the company will be listed on the New York Stock Exchange (NYSE) under the RACE ticker.

JP Morgan, Goldman Sachs, and UBS are managing the IPO. UBS is the leading investment bank of the syndicate. It is believed that because of the hype, Ferrari’s shares will be sold to general public at a premium rate.

The US automaker has an option to sell another 1.7 million shares, if the demand increases massively. In this case, the company can avail its over-allotment option, and finance another $82million -89million for its operations. It is probable that the company will return about

Earlier on, last October, Fiat announced the spinoff its most profitable brand: Ferrari. The major reason was a dispute between Fiat’s CEO, Sergio Marchionne, and Ferrari’s head Luca Cordero di Montezemolo. The difference of opinion between both executives on increasing Ferrari’s unit sales to enhance its profitability had lead to the spinoff.

Mr. Montezemolo believed that an increase in auto sales for the popular sports vehicle will reduce its exclusivity, which the company currently enjoins. Failure will tarnish Ferrari’s brand image, and in the future, the measures will reflect towards lower sales.

Additionally, disassociation of Ferrari with Fiat will help the sports maker to improve its image. Currently, Fiat is the least profitable in the Detroit automakers, and has been suffering from United Auto Workers Union’s (UAW) threats. The company was also considering a possible merger with General Motor Company (NYSE:GM), a move towards achieving stability and improving profitability.

However, the largest US automaker refused to sign the merger deal, as it believed that joining with Fiat will put a black mark on GM’s reputation.

On the other hand, it is likely that the investors will maintain bullish outlook on Ferrari stock, with high probability that the company will avail over-allotment option owing to the high demand.

Despite the disassociation of Ferrari from Fiat and its ongoing profitability and debt issues, analysts are bullish on Fiat stock.

According to a group of 25 analysts from the Street covering the company stock, 14 have given it a Buy, six have stated a Hold rating, and five are of an opinion to sell the stock. The group has also agreed on a 12- month target price of $16.65, with an upside return potential of 6.3% from the Friday’s closing price of $15.67.

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