Fiat Chrysler is planning to spin off its luxury brand Ferrari as an independent company and sell off 10 percent of the supercar's shares in an initial public offering in a yet unnamed United States stock exchange.
In a statement, Fiat Chrysler says it will sell around 100 million Ferrari shares worth $2.5 billion likely in the New York Stock Exchange before listing shares in a European exchange later on. The company says the remaining 90 percent of shares will be offered to Fiat Chrysler's stockholders, with a huge amount of those shares going to the Agnelli family, Fiat's original founders.
Investment bank Mediobanca estimates Ferrari's value at 9 billion euros or $11.3 billion. Pierro Ferrari, the only living heir of Ferrari founder Enzo, currently owns 10 percent of the storied brand. In its third quarter earnings report, Ferrari announced a revenue of 662 million euros or approximately $844 million on a 13.4 profit margin, one of the highest in the industry.
"As we move forward to secure the 2014-2018 Business Plan and work toward maximizing the value of our businesses to our shareholders, it is proper that we pursue separate paths for FCA and Ferrari," says Sergio Marchionne, CEO of Fiat Chrysler.
Chairman John Elkann, grandson of Gianni Agnelli, says the spinoff will allow Ferrari to "preserve the cherished Italian heritage" and will provide "substantial value" for Fiat Chrysler's shareholders.
Analysts, however, believe an independent Ferrari will be riddled with financial difficulties not unlike those faced by other luxury car makers struggling to stay afloat in an industry where scaling often means surviving.
As part of its exclusive appeal, the F12 Berlinetta maker limits production at 7,000 cars every year, but Marchionne, who helped push out former Fiat Chrysler CEO Luca Corderi di Montezomolo, reportedly wanted to increase production at 10,000 and make more money.
"The global industry trend is that such brands seek shelter by becoming part of a large automaker," Arndt Ellinghorst, analyst at London-based ISI Group, says. "Fiat does the opposite to repay debt from the mass market business. It's the beginning of the end."
Luxury supercars Porsche, Lamborghini and Bentley certainly strained for survival as independent car makers before they flocked to Volkswagen in Germany. BMW picked up Rolls-Royce in 2002 and Aston Martin is now partly owned by Daimler AG and Ford Motor Company. Stefan Bratzel, director of the Center of Automotive Management at Germany's University of Applied Sciences describes the situation best:
"It's getting increasingly difficult to operate in a market niche like sports cars as a stand-alone company."
Analysts say, while it's easy to see why Fiat Chrysler is cashing in on Ferrari's appeal, the deal will not change much for the company, which will still remain one of the most indebted car manufacturers in the world.
Max Warburton at Bernstein Research points out that although the company will raise about $4.7 billion, including $1 billion from parting ways with Ferrari, Fiat Chrysler will still have $8.8 billion to $10.1 billion in debt.
Sascha Gommel of Commerzbank also criticizes Fiat Chrysler's inability to cut down its debt organically.
The "real end-game here," Warburton says, is that the sale of Ferrari will leave the Elkann and the Agnelli clan with a quarter of Fiat Chrysler and 2.25 billion euros.
Giuseppe Barta, former head of Fiat's archives and Bocconi University professor, agrees.
"Marchionne did another financial miracle for the Agnelli family," he says. "John is benefitting the most as he gets direct grip on Ferrari and sees his assets reevaluated."