Fiat Chrysler Automobiles NV (NYSE:FCAU) (BIT:F)’s shares zoomed upward by nearly 19% Wednesday after the Italian automaker announced its plans to list a 10% stake in luxury brand Ferrari and issue $2.5 billion in convertible bonds to fund the parent company’s turnaround plan. The latest move is a way to unlock value in the luxury brand and distinguish it from its mass-market parent.
Fiat Chrysler’s full control of Chrysler
Italian car maker Fiat bought 59% of Chrysler out of bankruptcy in 2009. Fiat then acquired full control of Chrysler in 2014 and decided to combine all its businesses under the Fiat Chrysler Automobiles NV. It took over seven years before Chrysler finally returned to the U.S. stock market after it merged with Daimler AG to form Daimler Chrysler.
Fiat Chrysler Automobiles NV (NYSE:FCAU) (BIT:F) received a tepid response from investors during its first day of trading on Wall Street on Oct. 13. Following its merger with Chrysler, Fiat has been striving to become the largest player in the auto industry, beating automaker aces like Honda Motor Co Ltd (ADR) (NYSE:HMC) (TYO:7267) and General Motors Company (NYSE:GM).
A low-down on Ferrari spin-off
Fiat Chrysler Automobile will spin off its Ferrari brand into a new publicly traded company. The existing shareholders of FCA will receive 90% of Ferrari’s outstanding shares, while Fiat Chrysler will sell 10% of Ferrari’s shares in a public offering. The shares will be listed in the United States with a possible double listing on a European exchange. The shares may begin trading sometime next year.
In a statement, FCA chairman John Elkann said: “Coupled with the recent listing of FCA shares on the NYSE, the separation of Ferrari will preserve the cherished Italian heritage and unique position of the Ferrari business and allow Fiat Chrysler Automobiles NV (NYSE:FCAU) (BIT:F) shareholders to continue to benefit from the substantial value inherent in this business”.
The spin-off decision follows several years of denials from CEO Sergio Marchionne in considering a sale of the Italian exotic car brand Ferrari. A Ferrari spinoff had long been speculated by industry experts as Marchionne seeks to maximize values from the group’s various brands. However, Fiat Chrysler’s other luxury brands, including Alfa Romeo and Maserati, will remain part of the parent company.
Reacting to the spin-off move, Roberto Lottici, a Milan-based fund manager for Ifigest, said: “They seem to have sorted out their capital worries in one go”. He added: “It looks to me like they’ve packaged the Ferrari deal as a pill to help sell the convertible (bonds) after results that were far from overwhelming”.