Fiat Chrysler Automobiles NV is seeking more than 6 billion euros (US$7 billion) for its car-part unit Magneti Marelli SpA in exclusive sale talks with a supplier owned by KKR & Co., a private equity firm that’s eyeing a lower price tag, according to people familiar with the matter.
The U.S. fund may aim to pay around 5 billion euros because conditions for Fiat’s alternative plan of spinning off the division have deteriorated, said the people, who asked not to be named because the talks are private. Fiat Chrysler chose to begin talks with KKR over an offer from competing fund Apollo Global Management of more than 6 billion euros, they said. KKR would merge Marelli with its Japanese parts maker Calsonic Kansei, which is leading the talks.
The difference in valuation between Fiat and KKR is a major hurdle that has led to two extensions on the original end-August deadline to complete the discussions, the people said, adding that talks may still fall apart. The deal is considered complex because it would combine Asian and European competitors.
A spokesman for Fiat Chrysler declined to comment as did KKR.
The sale of Magneti Marelli would become one of the first major decisions for Fiat Chrysler Chief Executive Officer Mike Manley, who took over on July 21, days before Sergio Marchionne died. Marchionne, who had favored a separation of the business by distributing shares to investors, had said Fiat was open to changing its mind for a "big check."
Magneti Marelli may achieve an enterprise value of $7.6 billion based on comparisons with peers and will likely receive high-yield credit ratings, Bloomberg Intelligence said in a note. The automotive supplier could provide Fiat Chrysler with more than $2 billion in dividends.
Fiat shares rose as much as 5.6% in Milan trading and were up 3.6% at 14.95 euros at 2:30 p.m., giving a market value of 23 billion euros.
Market conditions for a spinoff and a listing of the unit on the Milan stock-exchange have deteriorated in recent months as global trade tensions and profit warnings from automakers including Fiat Chrysler, as well as suppliers like Continental AG, have eroded confidence in the industry.
Magneti Marelli’s French competitor, Faurecia SA, trades at about 3.8 times expected earnings before interest, taxes, depreciation and amortization. At the same valuation, the Fiat unit would be worth less than 4 billion euros, the people said. Marelli is expected to report about 1 billion euros in EBITDA this year.
Volvo Cars this week delayed plan for a share sale, saying the timing is "not optimal." The backtracking from plans that were said to involve a share sale as early as this fall in Sweden and Hong Kong shows the worsening strain from trade conflict. Still, luxury carmaker Aston Martin is pushing ahead with its plan for a London initial public offering.
Before embarking on talks with KKR, Fiat fielded interest for the car-parts business from other potential buyers in addition to Apollo, including an unnamed Asian parts supplier and Bain Capital, people familiar with the matter said last month. The Italian-American carmaker has said it’s sticking to plans decided by the board in April to spin off the business, while pledging to evaluate bona fide proposals for alternative transactions.
By Tommaso Ebhardt, Aaron Kirchfeld and Daniele Lepido