The news-wires having
been buzzing of late reporting the time-line and expectations of the
much vaunted Ferrari IPO. (The ticker nominated is 'RACE' on the NYSE, not the expected 'FRRI' and the firm to use
a Dutch base, thus the NV suffix).
As part of FIAT
Chrysler's own very ambitious expansion efforts - as described in the
'5 Year Plan' (itself inferring the importance of China) – the
decision has been to release and float 10% or so of the Modena based
luxury sports-car maker.
Depending upon ultimate
valuation of the firm – presently set at €12.4bn - the rationale
is to gain approximately €1.2bn from the partial 10% divestment to
help underpin the global hopes of the various mainstream brands.
These span from the cornerstone of FIAT to its perceptual opposite
Jeep, the two globally immediately relevant full vehicle range
marques; with much in between from Alfa Romeo to Abarth to Chrysler.
[NB Alfa's JV with
Mazda for its new small Spider illustrates FCA's specific hopes for
constrained development costs whilst also gaining best-in-class
engineering; and could potentially allow both the Italians and
Japanese to continue to develop mutually advantageous models and
potentially whole platforms].
Whilst Piero Ferrari and the Agnelli
family retain their holdings, the remaining 80% of the Ferrari
shareholding will be obviously retained within FCA's own share-hold
structure. (Although this was 'marketed' in press reports almost as
if it were a new gain!)
As with this 'new gain', Ferrari's window-dressing starts here.
The news of the this
sent FCA share soaring, now up 28% or so over the last 10 days.
However, behind what appears to be speculative, knee-jerk
over-reaction.
But perhaps much more
interesting has been the major difference of opinion between Ferraris
old and new Chairmen, Luca Cordero di Montezemolo and Sergio
Marchionne. The former argues that Ferrari should maintain a stance
where Ferrari demand outstrips supply, so maintaining an exclusivity
and high aspiration for potential buyers, whilst also keeping Ferrari
wholly FIAT owned. The latter prefers to see production numbers rise
from about 7,000 (7,255 in 2014) to 9-10,000 (by 2019) to satiate
growing worldwide hopes, so as to fend-off potential substitutional
sales (such as to McLaren), obviously views the increase in profit
potential of 25%+ higher volumes, and with reported FIAT
capitalisation needs at about €48b for his plan, views both the
immediate income of a stake sale, and the ability to tap the markets
for more autonomous Ferrari financing, as an optimum route.
[NB FCA very recently
issued a convertible bond to the value of €2.5bn to aid that
financing requirement]
It is suspected by
investment-auto-motives that Ferrari (and Maserati) may well require
independent finance routes so as to develop a new era business model.
This could be said to be parallel to BMW's model for its i-series, in
so much that its use of intensive carbon fibre has meant that it has
sought to create a mid-manufacture supply chain, reaching from the
sourcing of material to its industrial weaving through to component
applications. Ferrari-Maserati may well be seeking to replicate that
industrial model, one far removed from the FCA supply demands of
mainstream vehicles.
However, whilst this is
very probably the case for lightweight sports-cars and super-cars, a
notion supported by CEO Amedeo Felisa's words about Ferrari staying
sportc-car focused – unlike various rivals (eg Porsche, Jaguar) –
this stance ultimately appears unlikely to remain over the medium to
long term.
It seems very likely
that Ferrari will indeed grow its vehicle portfolio into other
realms, indeed be almost expected to as over time FCA releases more
and more FRRI shares into the capital markets and Ferrari seeks
direct debt financing. The business model then will be to grow, even
if more sensitively than Porsche did with its leap-frog into SUVs
with Cayenne. More likely is a Ferrari 4-door coupe, akin to VW
Group's Porsche Panamera and mooted Bugatti Galibier and Aston
Martin's Rapide. Indeed it appears that a 4-door 'FF' may well have
been tailor made for a customer.
This approach then
would allow Ferrari-Maserati to mix and match a broad range of
architectures and components from within their own realm and from the
broader availability of FCA.
Hence this IPO heralds
a truly new era for Ferrari, as it at last gains greater
independence.
Whilst publicly
highlighting the “'legendary” status of Ferrari and the hope that
it is viewed as a luxury goods company, not simply auto-maker, the
personal views of the Agnelli scions (John and Lapo Elkann (and their
more publicity shy sister) of exactly how they should like to see
Ferrari develop have not been wholly expressed. This perhaps apparent
with the departure of Codero di Montezemolo.
Since FIAT's original
formation, and its major acquisition moves in the 1950s and 1960s,
the Agnelli's have necessarily always had close relations with
various Italian-centric and otherwise finance houses; so it come as
little surprise that the mutuality of an IPO, gaining income for FIAT
aswell as advisory fees and potential proprietary-trading for
investment banks has possibly supported an IPO.
The investment banks
which sought mandates are: UBS AG, Bank of America Corp, Merrill
Lynch, Banco Santander SA, Mediobanca SpA and JP Morgan Chase. It
appears that to curry a good relationship with various banks, FCA has
preferred to spread the fee structures over a wide contingent.
The firm's EBIT
earnings were €389m, on 7,255 cars, giving a per vehicle income of
€53,618. This at a relative low point in the economic cycle, yet
very probably boosted by the number of V12 cars sold.
It is hardly surprising
then, that with the economic renewal of the west under-way, and what
may be low-point trough in EM regions now reached, that the
potentially strong global pull of the mid-term and beyond creates
fertile ground of Ferrari's broad worldwide potential (as seen from
Sports Cars to Theme Parks).
At a time when Formula
One itself looks possible to undergo a new revolution under potential
new ownership seeking greater American and Chinese attraction, it
seems more than timely that the Agnelli scions and their bankers see
a multitude of business and branding opportunities for the prancing
horse. That said, there is a danger that future management, pushed by
investors, start to view the great race horse that is Ferrari as a
'show pony'.
Stop Press
The heavily over-subscribed 17.81m shares got underway as of 21/10/2015 at the high end of $52.00, so on a forecast P/E of x36, very high for automotive, yet on par to luxury goods companies on an EV/EBITDA of 11.2 (FIAT seniors sought). This issue will obviously be watched with interest to see whether in the short term the offer proves to be wholly advantageous to the seller, selling high into generally sombre markets, whilst those perhaps the more amateur retail buyers, happy to own the Ferrari name, experience any short term pain.
