The news that Fiat Chrysler Automobiles (FCA) is planning to spin Ferrari off into a separate company is interesting, but it is doubtful that the news will have much of an effect in Formula 1, although perhaps we will get a slightly better understanding of Ferrari’s financials as a result. What is clear is there will be little real change in the ownership, although once the company is fully listed there may be attempts by investors to build up stakes in the business. What is also clear is that the whole spin off process is idea designed as a carrot to draw US investors into ownership of FCA shares, bumping up the value of the company and giving it a more attractive share price and, importantly, more ability to borrow money. At the time, the move means that Ferrari does not lose its brand value by being too closely connected with FCA, which is a mass market manufacturer.
The plan is to float 10 percent of the company, which could be worth $1.1 billion, while distributing the 80 percent of Ferrari owned by FCA to its shareholders for free. This means that the value of FCA shares have shot up in the last few hours, adding value to the company, although the ownership will remain little changed. FCA boss Sergio Marchionne will remain as Ferrari chairman. This will mean that the shares are more attractive and FCA has also introduced a $2.5 billion convertible bond issue to raise additional cash to help fund his ambitious plan to increase production in the next five years by more than 60 percent. The announcement is designed to help FCA reduce its debt load which currently stands at $14 billion. This important as the company needs to invest at least $60 billion in the next few years to achieve all the measures planned, which include 30 new models across the range by 2018 and a growth spurt to seven million cars per year.
Fiat’s founding family, the Agnellis, will be the largest shareholder of both companies, with 30 percent of the equity in both cases.