FCA's Ferrari Move Likely To Make Capital Raising Exercise Run Smoothly

Alfa Romeo 156, Ferrari look tuning by CARROZZERIA SCANNALIATO, front badge, seen in Düsseldorf, Germany (Photo credit: Wikipedia)

Fiat Chrysler Automobiles (FCA) shocked investors with its decision to float off 10 per cent of storied luxury sports car manufacturer Ferrari and return the rest of it to shareholders, but as the dust settled on the deal, investors saw the sale more as a canny way to persuade investors to sign up to the capital raising plan, with little impact on the long-term future of FCA.

FCA Wednesday announced plans to raise about $4.7 billion including an estimated around $1 billion from the sale of Ferrari, a $2.5 billion convertible bond, and the sale of shares. FCA owns 90 per cent of Ferrari. Piero Ferrari, son of the founder Enzo, owns 10 per cent.

Before news of the deal, FCA was seen as the world's most indebted automobile manufacturer. After the deal is completed some investment banks don't think much will change.

'FCA will still be left with seven to eight billion euros ($8.8 billion to $10.1 billion) of net debt, over eight billion euros of pensions and healthcare liabilities and massive negative working capital. This still makes FCA the most leveraged automaker in the world, on our reckoning,' said Bernstein Research analyst Max Warburton.

'Spinning off Ferrari is another clever exercise in value maximization. The structure and timing of the deal is genius - as it provides a juicy carrot for shareholders - if they participate in the capital raise, they get to own Ferrari shares too,' Warburton said.

Warburton asked 'what is the real end-game here', and said it was designed to eventually allow family owners the Elkanns to leave the auto business, which will own about one quarter of FCA after the deal.

Commerzbank analyst Sascha Gommel is a sceptic too,

'While we see the rationale behind the decision to make Ferrari independent, it does not change our cautious view on FCA,' said Gommel.

Gommel said FCA's inability to reduce financial leverage organically is a major concern, and cut his rating on FCA to 'Sell'.


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