FCA DISTRIBUTES 90% OF FERRARI AMONG THE SHAREHOLDERS. THE MARKET EXPLODES, THE CONVERTENDO IS ON THE WAY
FCA's first board under the roof of The Economist, Fiat Chrysler's tax office in England, has reserved a barrage of twists, capable of unleashing fireworks on the stock both on Wall Street and on Nilano: from -3 %, after the announcement of the quarterly accounts, up 18%, when it became known that Sergio Marchionne had decided to play the joker: the separation between Ferrari and Fiat "as part of a plan for the creation of a capital structure appropriate to support the long-term development of the Group”. Then the share, like Exor and Cnh, fell a bit but still resulting in the best of Piazza Affari despite the general bearish trend of the Milan stock exchange.
In summary, the transaction provides for the public offering of part of FCA's stake in Fiat, equal to 10% of the capital. The rest, equal to 80% of the capital of the Maranello company, will be distributed pro-rata to the shareholders of Fiat Chrysler. The deal will be completed by 2015. By then FCA expects Ferrari's shares to be listed in the United States and "in another European market". That is, it is not obvious that the Prancing Horse enters Piazza Affari, rather than on more welcoming price lists from a fiscal point of view.
But the news didn't end there. The placement of Ferrari is part of a maneuver to strengthen the group's capital, through the issue of a 2,5 billion dollar convertible aimed at "US and international institutional investors", securities that will be compulsorily converted into FCE shares upon maturity , on the basis of a conversion ratio which will be defined at the time of pricing. The success of the offer (to be completed within the year) will be facilitated by the fact that the subscribers will be entitled to participate in the Ferrari separation operation and to receive shares of the prancing horse.
“The spin-off will significantly strengthen capital” explained Sergio Marchionne adding that “with the aim of strengthening the 2014-2018 business plan and maximizing the value of our businesses for shareholders, it is appropriate that we pursue separate paths for FCA and Ferraris". The consequences, both financially and industrially, are significant.
a) Ferrari remains firmly in the hands of Exor, which jumped 19% immediately after the news, which controls about 34% of FCA's capital (but has 46% of the voting rights). However, the capital will be spread among the group's shareholders, already mostly US and European. After the issue of the convertible, the international percentage of Ferraris is destined to rise further, certainly above 50%. It will then be interesting to understand which European Stock Exchange will be chosen for the listing. Milan, which aspires to a position of respect in the luxury market, cannot miss this opportunity.
b) How much is Ferrari worth? Rumors have multiplied in recent months. Marchionne, it is known, considers the jewel of Maranello in the same way as the multiples of luxury rather than those of the car. Hence the sensation that the CEO will not settle for a valuation of between 5 and 6 billion, hypothesized in recent months, but will aim to obtain a price of around 10 and 12 billion, conceivable only with an ebitda of one billion, possible only raising the sales bar above 10 pieces. In the third quarter, Ferrari achieved revenues of 662 million euros (+24%), with 1.610 homologated cars delivered (+8% compared to the previous year).
c) Thanks to the 2,5 billion dollars arriving from the conversion plus the approximately 800 million euros arriving from the placement of 10% of the Rossa, Marchionne will finally have at his disposal the firepower necessary to get investments off the ground, starting from the plans development of the new Alfa models. Thus less concern for industrial debt, which rose more than expected "due to seasonal cash absorption" to 11,4 billion (against 9,7 billion as at 30 June) while analysts expected a figure between 10,4 and 10,8 billion.
d) FCA confirmed its 2014 guidance: global deliveries of approximately 4,7 million vehicles (increase in the third quarter alone; revenues equal to or greater than 93 billion euros and EBIT between 3,6 and 4 billion euros; profit net debt is expected to be between around €0,6 and €0,8 billion, with earnings per share (eps) improving from around €0,10 to a range between around €0,44 and €0,60, and debt net industrial value at the end of the year is expected to be between 9,8 and 10,3 billion euros e) The group was able to offset the decline in sales in Latin America (-14% deliveries) with the good performance in North America (+20 %) and Asia (+30%), driven by Jeep, plus the timid recovery of Europe and, especially with the upward trend of luxury brands (+35%).
Quarterly EBIT grew by 7% to 926 million, less than the 937 million indicated by the consensus of analysts. However, excluding unusual items, operating profit improved by 99 million euros, thanks to the strong performance of Apac and the Luxury brands. In summary, the FCA quarterly numbers are not exciting. And it is not difficult to guess that the market would have rejected, in this market phase, a capital increase transaction complicated by the need to place the shares deriving from the purchase of the securities delivered upon withdrawal. But once again Marchionne has been able to amaze and "tame" the market.
