Daily Management Review

To Boost Value, Fiat Weighs Maserati, Parts Spinoffs


To Boost Value, Fiat Weighs Maserati, Parts Spinoffs
In a plan that includes spinning off the upscale Maserati and Alfa Romeo brands as well as its components operations, Fiat Chrysler Automobiles NV is considering various options, if reports in the media are to be believed.
With the aim to make Fiat Chrysler more attractive for a potential combination with a competitor, the moves would focus the Italian-American company on mass-market cars, reported the media quoting people with knowledge of the developments. Analysts estimate that while Magneti Marelli and other parts businesses are valued at up to 5 billion euros, the luxury-car operations could be worth as much as 7 billion euros ($8.3 billion).
Including just separating one or more of the component units, which also include Teksid and Comau, that are several options that are still under consideration even as the discussions among executives are progressing. Sources reportedly said that while the timing of carrying out the transactions remains uncertain, a final decision may not be made until early 2018.
And as the company continues to underperform peers, the plan is also meant to unlock value for the Agnelli family and other shareholders. Double of the group’s current enterprise value of 24.5 billion euros, Fiat Chrysler’s businesses are worth about 50 billion euros on their own, Goldman Sachs Group Inc. estimates.
Before leaving the carmaker in 2019, the final five-year plan is being prepared by Chief Executive Officer Sergio Marchionne, 65. A familiar tool for the executive is separating parts of the group. The company spun off truck and tractor maker CNH Industrial NV in 2011 and supercar brand Ferrari in 2016. Compared to about $6 billion in 2004, when Marchionne took charge, combined, the entities now have a market value of $57 billion.
to anchor the mass-market car business, Fiat Chrysler intends to keep Jeep, which also includes the Dodge and Ram nameplates, under the proposal. There were “big uncertainties” that it would pursue a transaction, said China’s Great Wall Motor Co., which has shown interest for Jeep.
“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.
Still, Fiat is evaluating the sizable risks that a breakup strategy carries. Alfa Romeo still needs billions of euros in investment to develop new models to compete with the likes of BMW and Mercedes-Benz as it is in the early stages of its push to become a global luxury-car brand. And the allure of the Ferrari marque is not present in either Maserati nor Alfa Romeo. Fiat may look to secure a partner for its upscale brands to offset these hurdles.
There is clear pressure to act. Trading at 4.6 times estimated 12-month earnings compared with the industry average of 7.4 times, Fiat shares are still among the cheapest in the Stoxx 600 Automobiles & Parts index despite a 34 percent surge this year. Trading at 11.4 times estimated earnings is car-parts maker Faurecia, one of Magneti Marelli’s competitors.