The Ferrari Owners’ Club
of Great Britain

Fiat Chrysler Plans Ferrari IPO

29-10-2014

The following report, by Eric Sylvers, was posted on the website of the Wall Street Journal:

 

fca_logoFiat Chrysler Automobiles NV will sell 10% of Ferrari in an initial public offering next year, as Chief Executive Sergio Marchionne seeks to unlock the value of the sports-car brand and fund an ambitious five-year plan. Fiat Chrysler shares surged on the news and were up 14% at EUR8.68 in midafternoon trading in Milan.

The news of the Ferrari listing comes six weeks after Luca Cordero di Montezemolo stepped down as chairman following 23 years at the helm. According to people familiar with the situation, Mr. Montezemolo had long opposed a Ferrari IPO. He was adamant at capping Ferrari’s yearly production at about 7,000 vehicles, while Mr. Marchionne has hinted that the figure could rise to 10,000.

While Mr. Marchionne has managed the herculean task of breathing new life into Chrysler following the company’s bankruptcy in 2009, he now must achieve an arguably more difficult feat: putting the new Fiat Chrysler in a position to compete more effectively with rivals that sell more than twice as many vehicles and have greater advantages of scale.

A key move in that direction was Fiat Chrysler’s presentation in May of its five-year plan, which called for total vehicle sales to rise to 7 million in 2018 from 4.4 million last year. In presenting that plan, Mr. Marchionne said categorically that Ferrari wasn’t for sale.

At the time, he said outside estimates put the value of Ferrari at about EUR4.3 billion ($5.5 billion)–though he thought it was worth much more. The valuation will ultimately depend on whether investors see Ferrari more as a car manufacturer or a luxury company.

Mr. Marchionne said that if Ferrari’s annual car sales increased to 10,000, gross operating profit would easily top EUR1 billion. If Ferrari manages to attract the multiples applied to luxury-goods companies–about 10 times annual gross operating profit–the car maker would be valued at more than EUR10 billion, Mr. Marchionne said.

“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,” Mr. Marchionne said in a statement released after the company’s first board meeting in its new London headquarters.

A corporate reorganization completed earlier this month created Fiat Chrysler, a new entity registered in Amsterdam, headquartered in London and with stock market listings in New York and Milan. Fiat has owned 100% of Chrysler since the beginning of the year. Fiat Chrysler owns 90% of Ferrari. The 80% of Ferrari not included in the IPO, which is slated to be held by June, will be distributed to Fiat Chrysler shareholders.

The Ferrari IPO promises to be a hot stock offering next year given the brand’s mystique and ultrahigh price points. The cap on Ferrari production generates waiting lists lasting more than a year and creates enough pent-up demand to keep prices high on the secondary market. Mr. Marchionne has said the market could easily absorb higher sales of new Ferraris, but any increase in production would be carefully managed to protect the brand.