Maserati Automotive
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Fiat Is Said to Mull Maserati, Parts Spinoffs to Boost Value

Aug. 23, 2017
The moves would focus the Italian-American company on mass-market cars to make Fiat Chrysler more attractive for a potential combination with a competitor, sources report.

Fiat Chrysler Automobiles NV is considering options including a plan to spin off the upscale Maserati and Alfa Romeo brands as well as its components operations, according to people familiar with the discussions.

The moves would focus the Italian-American company on mass-market cars to make Fiat Chrysler more attractive for a potential combination with a competitor, said the people who asked not to be identified because the deliberations are private. The luxury-car operations could be worth as much as 7 billion euros ($8.3 billion), while Magneti Marelli and other parts businesses are valued at up to 5 billion euros, analysts estimate. 

Discussions among executives are progressing, with several options still under consideration, including just separating one or more of the component units, which also include Teksid and Comau, the people said. A final decision may not be made until early 2018 and the timing of carrying out the transactions remains uncertain, they said. Fiat Chrysler declined to comment.

The plan is also meant to unlock value for the Agnelli family and other shareholders as the company continues to underperform peers, the people said. Goldman Sachs Group Inc. estimates that Fiat Chrysler’s businesses are worth about 50 billion euros on their own, double the group’s current enterprise value of 24.5 billion euros. 

Fiat shares rose as much as 2.4% after the news and were up 1.9% at 2:03 p.m. in Milan trading, valuing the company at 17.5 billion euros.

Chief Executive Officer Sergio Marchionne, 65, is preparing his final five-year business plan before he leaves the carmaker in 2019. Separating parts of the group is a familiar tool for the executive. The company spun off truck and tractor maker CNH Industrial NV in 2011 and supercar brand Ferrari in 2016. Combined, the entities now have a market value of $57 billion, compared to about $6 billion in 2004, when Marchionne took charge.

Under the proposal, Fiat Chrysler intends to keep Jeep to anchor the mass-market car business, which also includes the Dodge and Ram nameplates, the people said. Jeep has attracted interest from China’s Great Wall Motor Co., which said on Tuesday that there were “big uncertainties” that it would pursue a transaction.

“With Great Wall expressing a clear interest in all or part of Fiat Chrysler, the focus shifts from earnings to breakup value potential,” Exane BNP analysts Dominic O’Brien and Stuart Pearson said in a note Wednesday.

Breakup Risks

Still, a breakup strategy carries sizable risks, and Fiat is evaluating those, the people said. Alfa Romeo is in the early stages of its push to become a global luxury-car brand and still needs billions of euros in investment to develop new models to compete with the likes of BMW and Mercedes-Benz. And neither Maserati nor Alfa Romeo have the allure of the Ferrari marque. To offset these hurdles, Fiat may look to secure a partner for its upscale brands, the people said.

The pressure to act is clear. Despite a 34% surge this year, Fiat shares are still among the cheapest in the Stoxx 600 Automobiles & Parts index, trading at 4.6 times estimated 12-month earnings compared with the industry average of 7.4 times. Car-parts maker Faurecia, one of Magneti Marelli’s competitors, trades at 11.4 times estimated earnings, while BMW is at 7.2 times.

A breakup of Fiat would be another step in the billionaire Agnelli family’s plan to wean itself from a dependence on the volatile mass-market car business. Under John Elkann, the clan’s chief, Fiat’s controlling investor has been seeking to diversify its wealth through its holding company Exor NV, including expanding its interests in real estate and reinsurance. Elkann has said Exor would be prepared to reduce its 24.5% stake in Fiat Chrysler in a deal to create a bigger group. 

Intensifying Pressure

Marchionne has long been a vocal proponent of consolidation, arguing that the industry wastes money by developing multiple versions of the same technology. Those pressures have only intensified as countries such as the U.K. and France set a deadline for the end of combustion engines, and self-driving technologies and ride-hailing services threaten to upend the auto industry’s traditional business model.

The Fiat CEO acknowledged that deeper changes might be coming when he said last month that the automaker will evaluate whether to spin off some of its businesses. The company is pushing to eliminate 4.2 billion euros in debt by the end of next year.

“Fiat management has very clearly opened the door for potential separation of some of its businesses,” Adam Jonas, an analyst with Morgan Stanley, said in a note.

by Tommaso Ebhardt

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Licensed content from Bloomberg, copyright 2016.

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