Fiat Chrysler has announced that it is spinning off Ferrari in a U.S. IPO it hopes will raise at least $1 billion for the struggling automaker. Fiat Chrysler, which declared bankruptcy in 2009, has been struggling to compete with its rivals in the United States and Europe.
In May, Fiat Chrysler unveiled its five-year plan which called for vehicle sales to rise to 7 million by 2018. This marked a 50 percent king size increase in bed sales over 2013. The plan called for retaining Ferrari within the company. Investors disliked the plan and stocks plummeted after the announcement.
According to the Wall Street Journal, the about face for the company comes just a month and a half after Luca Cordero di Montezemolo left his position of chairman of Ferrari after 23 years. Montezemolo had opposed a Ferrari IPO and had capped production at 7,000 vehicles per year.
Fiat Chrysler's chief executive Sergio Marchionne said in a statement, "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."
In May, Marchionne had said that estimates put the value of Ferrari at $5.5 billion. The planned IPO calls for selling 10 percent of the existing stock. An additional 80 percent will be distributed to Fiat Chrysler shareholders who would use it to pay down loans from advice of debt consolidation companies.
After the announcement of the IPO, Fiat Chrysler stock prices rose in Milan, Italy by 13 percent and were up almost 12 percent on the New York Stock Exchange to end at $10.85 on Wednesday.
Fiat Chrysler manufactured and sold more than four million cars and trucks in over 150 countries in 2013. Major brands include Alfa Romeo, Chrysler, Dodge, Jeep, Maserati and Fiat. Ferrari manufacturing is capped at approximately 6,500 vehicles, but Marchionne has already stated that he wanted to increase production to 10,000 cars per year.
Spinning off Ferrari could be quite a boon to the automaker. Its recent struggles competing in Russia and Brazil have hurt the brand and the company needs to raise cash to cover its expenses and come up with the nearly $61 billion that Marchionne announced would be spent on research, development and capital expenditures.
In addition to announcing the Ferrari IPO, Marchionne also laid out a $2.5 billion convertible bond and a 100 million share sell off of Chrysler Fiat stock. That sell off should be worth over $1 billion at current share prices.
The competitiveness of the Fiat Chrysler brand needs money to improve and Ferrari is worth a lot of money in today's market. This spin off will benefit both companies and investors who want to add Ferrari to their portfolio will have a good opportunity in 2015.
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