Analyzing Ferrari’s Separation from Fiat Chrysler Automobiles

As discussed earlier in this series, Fiat Group acquired a 50% stake in Ferrari in 1969 and gradually expanded it to 90%. In October 2014, Fiat Chrysler Automobiles (FCAU) announced its intentions to spin off Ferrari (RACE) as an independent entity. As a result of this separation, Ferrari got listed on the NYSE (New York Stock Exchange) and began trading on October 21, 2015, with an IPO priced at $52 per share. With this IPO, FCA publically offered 10% of Ferrari shares from its current stakes. The remaining 80% of Ferrari shares will be distributed among FCA shareholders. This distribution is expected to take place in early 2016.

Ferrari only makes up 0.52% of the Renaissance Capital’s IPO ETF (IPO). The fund invests about 10.2% of its total portfolio in Alibaba Group Holding (BABA).

The FCA-Ferrari conflict became public in September 2014. Reportedly, FCA CEO Sergio Marchionne publically criticized the recent performance of Ferrari’s Formula 1 racing team, Scuderia Ferrari, and called the performance “unacceptable and absolutely non-negotiable.” According to a Bloomberg report, Marchionne said, “Ferrari Chairman Luca Cordero di Montezemolo needs to ensure that the supercar brand’s Formula 1 team produces more wins.”

Three days after his comment, Ferrari’s then chair, Luca Cordero di Montezemolo, decided to step out. The Wall Street Journal reported that Marchionne and Montezemolo had a disagreement over Ferrari’s production volumes where Marchionne wanted Ferrari to increase sales figures to 10,000 per year. Soon after the departure of Montezemolo in October 2014, FCA announced its intention to spin off Ferrari.

According to FCA Group, these transactions for Ferrari’s separation are intended to strengthen FCA’s balance sheet and allow it to better manage its funding requirements in the near future. Going forward, FCA expects that the demerger will allow both the companies to independently pursue their own growth strategies. On the other hand, planned separation should also provide an operational and financial independence to Ferrari.

Currently, the FCA Group head, Sergio Marchionne, is serving as chair of Ferrari. Ferrari has not made any official announcement yet about any possible change in top management after separation from FCA Group.

It’s important to know that European investment firm Exor currently holds 30% of FCA’s common shares. After the completion of demerger transactions, as shown in the image above, Exor is likely to hold nearly 24% Ferrari’s common shares.

Notably, FCA Group has plans to expand its business in the luxury car segment by increasing investments in Maserati and Alfa Romeo luxury car brands, which are owned by the company. On the other hand, luxury car brands like Porsche (POAHF), Daimler (DDAIF), Renault (RNLSY), and Tata Motors’ (TTM) Jaguar are focusing more on capturing increasing demand from emerging markets. In the near term, these brands may give stiff competition to Ferrari in emerging markets.