Ferrari to separate from Fiat, offer 10% of its shares in IPO
At last, a Ferrari spinoff that doesn’t involve a road.
The storied Italian sports car builder will become a separate company, owner Fiat Chrysler Automobiles announced Wednesday.
The move comes just weeks after Ferrari’s longtime chairman, Luca di Montezemolo, resigned after leading the company since 1991.
“The separation of Ferrari will preserve the cherished Italian heritage and unique position of the Ferrari business and allow FCA shareholders to continue to benefit from the substantial value inherent in this business,” John Elkann, chairman of FCA, said in a statement.
Fiat has owned at least part of Ferrari since 1969. This month Fiat formally completed a merger with Chrysler to form the newly minted FCA, making it the seventh-largest automaker in the world.
Investors heartily endorsed Wednesday’s news of Ferrari’s spinoff, sending FCA’s stock up nearly 12% to $10.85, its highest level since the stock began trading Oct. 13 on the New York Stock Exchange.
The newly independent Ferrari will offer 10% of its shares in an IPO, on a U.S. stock exchange, that could happen as early as November, according to Rich Hilgert, senior equity analyst for the automotive sector at Morningstar.
FCA will then distribute the remaining 90% of shares to its existing shareholders in 2015.
The goal of the spinoff is primarily to raise capital for FCA, which needs cash to fund an ambitious five-year plan that includes developing new products for its Chrysler, Fiat, Alfa Romeo, Dodge, Jeep and Ram divisions.
“For FCA, which is a heavily debt-laden company, [the spinoff] relieves some of that burden,” Hilgert said. “The company is in a position right now where it needs to heavily invest in its own products.”
Although the impending IPO of Ferrari will help, “it doesn’t move the needle a whole lot,” Hilgert said, estimating $300 million to $500 million will flow into FCA’s coffers as a result.
Ferrari has long been an immense source of cash for Fiat, raking in roughly $311 million in net profit in 2013; its merchandising alone brought in roughly $68 million. In July, the company said net profit for the first six months of the year rose 9.8%.
But there has been friction in Ferrari’s driver’s seat.
The automaker — whose high-end exotic sports cars and supercars cost as much as $1.3 million each — has deliberately capped production at around 7,000 cars a year for several years.
That philosophy was spearheaded by Montezemolo to maintain a global appetite — and profits — for its high-revving machines.
But Montezemolo clashed recently over this plan with parent company FCA’s sweater-clad CEO, Sergio Marchionne, who has been keen to increase Ferrari’s money-making potential. Marchionne took over for the departed chairman Oct. 13.
Ferrari earned much of its cache on the race track; company founder Enzo Ferrari was a racing fiend for, so much so he sold only street cars because it funded his racing team.
Although Montezemolo shared that passion, the 2014 F1 racing season was disastrous for Ferrari, which also led to his departure.
It doesn’t appear to have affected the brand’s reputation. At the Pebble Beach auctions in August, a 1962 Ferrari 250 GTO sold for $38 million, making it the most expensive car ever sold at auction.
Ferrari shut down Rodeo Drive on a recent Sunday for a public celebration of its 60th anniversary of selling cars in the U.S., its largest global market. Marchionne used the occasion to unveil a limited-edition F60, a $3 million-plus anniversary model Ferrari is building for just 10 of its most loyal U.S. buyers.
