FCAU - Fiat Chrysler Automobiles

[Sportgamma]

Since the middle of February Exor has been buying back stock. During that time the company has bought around 3.7m shares (common, preferred and saving shares) or about 1.7% of the total shares outstanding for a sum of €81.2m.

 

They haven't been buying for months and now all of a sudden they start again. We have the FI/CNH merger going through soon and Marchionne talking to banks about financing the merger FIAT and Chrysler.

 

Just makes me wander...

 

Could you elaborate on this?

 

Thanks

 

Its just a gut feeling.

 

However,

1. we know that the catalyst concerning the dispute between VEBA and FIAT is imminent

2. Also, the merger between FI/CHN

3. Exor is still trading at a discount to a marked-to-market book value

 

The way I read into this is that they expect the market-to-market book value to rise soon (the authorisation has been there for almost a year, but they only recently started buying).

 

Another explanation is that they are using the proceeds from the debt issuance to buy back shares.

 

 

Well, he admitted they made a mistake in a 0.76% of NAV investment? Easy enough, right?

Anyway, a 38% return is really impressive! Congratulations! But discount to NAV surely must be narrowing now. Isn’t it? So, what are you going to do? Will you let your capital compound in Exor, or will you cash in your very satisfying profits and look somewhere else? In other words, do you see Exor as a long-term investment, or just as a very successful trading opportunity, whose thesis is playing out exactly the way you expected?

 

giofranchi

 

Gio,

 

Indeed discount to NAV is has narrowed considerably.

 

Exor was an unorthodox pick for me because normally when I go for special situations, I want to have a clear view of the timing of the catalyst. Hower, Exor was more of a generally undervalued category stock, but with a multiple value enhancing catalysts albeit with an unclear timing.

 

As things have progressed I have become more and more impressed with Elkann and Marchionne and with Exor in general. They are value oriented, overcapitalised and opportunistic. As you point out, 76% of GAV is in four companies that they exercise some control over. Two of those companies are capital intensive, cyclical and quite risky enterprises. So my line of thinking is much more oriented towards how they will allocate capital that they will pull out of existing businesses to new ventures.

 

So, to answer your question, I see Exor as an owner-operator holding company that I would like to hold onto for the long term (however I am not expecting a 40% annual return. I´m not thinking of adding to my stake at these prices, if I add it will be directly in FIAT.

 

 

[giofranchi]

As things have progressed I have become more and more impressed with Elkann and Marchionne and with Exor in general. They are value oriented, overcapitalised and opportunistic. As you point out, 76% of GAV is in four companies that they exercise some control over. Two of those companies are capital intensive, cyclical and quite risky enterprises. So my line of thinking is much more oriented towards how they will allocate capital that they will pull out of existing businesses to new ventures.

 

So, to answer your question, I see Exor as an owner-operator holding company that I would like to hold onto for the long term (however I am not expecting a 40% annual return. I´m not thinking of adding to my stake at these prices, if I add it will be directly in FIAT.

 

Thank you Sportgamma,

I will have to think about it much more carefully! :)

 

giofranchi

[Phaceliacapital]

For what it's worth, UBS upgraded from Neutral to Buy.

 

Date for hearing 25 april.

[fareastwarriors]

Fiat Weighs Buying Rest of Chrysler and U.S. IPO .

 

 

http://online.wsj.com/article/SB10001424127887324474004578442654204386618.html?mod=WSJ_hpp_LEFTTopStories#articleTabs%3Darticle

Fiat_Weighs_Buying_Rest_of_Chrysler_and_U.S._IPO.pdf

[claphands22]

Thanks for the post. Looks like Fiat will buyout Chrysler with extra debt then IPO the combined company in the USA. Also wouldn't be surprised if they move the headquarters to the US and change the company name to Chrysler, similar to what they are doing with Fiat industrial.

 

Fiat could be a home run, question if they can get margins up. Which depends on higher new car sells in Europe and how successful their luxury brands will be.

 

Trying to make a reasonable prediction of the car industry in the next 5-10 years seems fool hardy. Maybe I am making a mistake with following Fiat...

[muscleman]

Thanks for the post. Looks like Fiat will buyout Chrysler with extra debt then IPO the combined company in the USA. Also wouldn't be surprised if they move the headquarters to the US and change the company name to Chrysler, similar to what they are doing with Fiat industrial.

 

Fiat could be a home run, question if they can get margins up. Which depends on higher new car sells in Europe and how successful their luxury brands will be.

 

Trying to make a reasonable prediction of the car industry in the next 5-10 years seems fool hardy. Maybe I am making a mistake with following Fiat...

 

Yeah. Making macro predictions is too hard. Look at when Wilbur Ross started buying XCO when gas price was supposed to bottom out at $6 in 2011.

The only things we can do is to get some rough idea of the macro so at least we are not totally blind, and then get a significant MoS on our picks.

Overall, we know the pent up demand is huge for trucks, and we know that the global economy seems ok. If there is another crisis, truck sales will go down and auto makers will get hammered again. If there is not, then we will probably be fine.

[claphands22]

One "macro" thing I worry about is Fiat's profits from Brazil. Read some articles about Brazilians with too much consumer debt. Wonder if too cheap of financing is boosting their profits to an unsustainable level.

 

 

 

 

 

 

[muscleman]

One "macro" thing I worry about is Fiat's profits from Brazil. Read some articles about Brazilians with too much consumer debt. Wonder if too cheap of financing is boosting their profits to an unsustainable level.

 

Fiat is the leader in Brazil. If a crisis comes in, GM and Ford and all other competitors in Brazil will be killed first. The question is whether this is enough to kill Fiat. If not, then after the crisis, things will only be better.

[Sportgamma]

Marchionne on capital allocation (won´t dilute stock as it is undervalued, will take advantage of interest rate environment) and a potential Fiat Chrysler merger deal:

 

http://www.businessweek.com/videos/2013-04-09/marchionne-says-fiat-has-cash-to-purchase-chrysler

[brker_guy]

http://www.autonews.com/article/20130424/COPY01/304249684/fiat-weighs-new-york-listing-after-chrysler-merger-report-says&cciid=email-autonews-daily#axzz2RQWKgoL8

[muscleman]

Marchionne on capital allocation (won´t dilute stock as it is undervalued, will take advantage of interest rate environment) and a potential Fiat Chrysler merger deal:

 

http://www.businessweek.com/videos/2013-04-09/marchionne-says-fiat-has-cash-to-purchase-chrysler

 

Potential sale of Ferrari?

If they sell Ferrari, that could harm their strategy to turn around Maserati and Alfa. Currently Ferrari is helping those two kids to grow up.

Oh, I just listened to the video. Ferrari is not for sale. That is great.

[LC]

Marchionne obviously knows Ferrari is worth a ton brand-wise. The question in my mind is not so much the details surrounding a Chrysler deal, but Alfa Romeo.

 

As he said, they need to rebuild Alfa Romeo the brand from scratch. I'm not sure if that is possible. The "economic climate" in Europe probably isn't conducive to that, either. Then again, I am no marketing expert - I just figure that when budgets are tightened in Europe, how easily can a car manufacturer produce and market a new brand?

[Sportgamma]

Marchionne obviously knows Ferrari is worth a ton brand-wise. The question in my mind is not so much the details surrounding a Chrysler deal, but Alfa Romeo.

 

As he said, they need to rebuild Alfa Romeo the brand from scratch. I'm not sure if that is possible. The "economic climate" in Europe probably isn't conducive to that, either. Then again, I am no marketing expert - I just figure that when budgets are tightened in Europe, how easily can a car manufacturer produce and market a new brand?

 

http://www.edmunds.com/car-news/us-is-key-to-alfa-romeo-revival-says-marchionne.html

 

The U.S. is the key to Alfa Romeo's revival, said Fiat CEO Sergio Marchionne at the 2013 Geneva Auto Show, as he dismissed criticism that previous Alfa revival plans have come to nothing here.

 

Marchionne said previous attempts to revive Alfa in the U.S. "never got executed." Marchionne spoke to reporters at a roundtable event here.

 

The 2014 Alfa Romeo 4C, which commanded much of the spotlight at the Geneva show, will spearhead the reintroduction of the brand in the U.S.

 

"A very solid alliance with Chrysler with a dealer network, the Chrysler infrastructure and the sharing of outstanding model platforms" is the key to Alfa Romeo's return to the U.S., Marchionne said.

 

He added: "It couldn't have been done before — the baseline investment would have exceeded the revenue."

 

As for the cars themselves, future Alfa Romeos will have three core characteristics.

 

"First, design," Marchionne said. "Second, the light-weighting of its vehicles and third, unique powertrain solutions. And we have met the target with the 4C."

 

-----

 

But Marchionne is less certain about how Alfa Romeo can achieve a revival in Europe.

 

"I don't know at today's price levels," he said, referring to today's heavy discounting. "The degradation of prices is occurring not just in the mass market, but the premium end, too."

 

[muscleman]

http://online.wsj.com/article/SB10001424127887323982704578452634164658240.html

[fareastwarriors]

http://www.forbes.com/sites/dalebuss/2013/04/29/fiat-seeks-market-relevant-value-for-veba-chrysler-stake/

 

Fiat Seeks 'Market-Relevant' Value For VEBA Chrysler Stake

[fareastwarriors]

http://dealbook.nytimes.com/2013/04/29/how-a-fiat-chrysler-merger-could-work/

 

How a Fiat-Chrysler Merger Could Work

 

[nsa122]

How are you all valuing Fiat, given the big unknowns?  Here is my stab in the dark.

 

Currently, market cap $7B and net industrial debt $7B (per recent Fiat IR presentation).

 

Parts:

Chrysler- Fiat's stake worth $5-6B based on VEBA negotiations. 

Ferrari- $4-5B?--10x 2012 trading profit (355m euro)

Maserati- $500M? 8x 2012 trading profit (43M euro)

Fiat per se- This seems like the big make or break part that is still uncertain.

 

For those who own it, are you valuing the company this way or on a consolidated basis?

 

Thanks in advance.

[Sportgamma]

http://www.zerohedge.com/news/2013-03-17/where-channel-stuffed-german-cars-go-die

[plato1976]

In case you guys didn't read:

 

 

http://www.gwinvestors.com/Main/Blog/Entries/2013/5/2_Fiat_SpA_(F_IM)__The_Bottom.html

[Sportgamma]

In case you guys didn't read:

 

 

http://www.gwinvestors.com/Main/Blog/Entries/2013/5/2_Fiat_SpA_(F_IM)__The_Bottom.html

 

Thanks for the update.

 

I must say that this stuff really baffles me. What am I missing here? The value of Ferrari alone is equal to the current share price and a conservative value of the Chrysler stake is €5.80 per Fiat share...Thats the downside scenario. What I found particularly interesting was that they actually discussed this with Marchionne:

 

The Agnelli Family (which owns 31% of Fiat through Exor SpA [EXO IM]) and venerable CEO Sergio Marchionne (history of turning around SGS SA, Fiat Industrial, Fiat in 2004, and of course Chrysler) have purposefully kept Fiat’s debt structure totally unsecured, with the ability to sell or distribute assets freely.  In our meeting with Marchionne last summer, he suggested in a nightmare European scenario, the highly profitable South American operations of Fiat could be sold to Chrysler and European operations simply shut-down to stop the bleeding.  A distribution of Ferrari stock, which alone is worth roughly the same price as Fiat’s stock today (using recent Aston Martin sale metrics), is not restricted by Fiat’s bond indentures, and has been discussed as likely after the merger between Chrysler and Fiat.

 

The valuation does not touch specifically on the potential value that Marchionne & co might create for Fiat shareholders by getting a good deal for the rest of Chrysler in terms of purchase price and funding. Bear in mind that the price of the stake actually has a ceiling as according to the equity recapture option. 

[Olmsted]

I originally thought the "distribute Ferrari and Chrysler shares directly to shareholders" scenario was value-investor sum-of-the-parts fantasy.  Theoretically possible, but not going to happen.  But I didn't realize they actually got that scenario from Marchionnne.  Wow!  Great CEO.

[Parsad]

Some of you may like this:

 

Hi Sanjeev,

 

...Taken on Sunday morning in Omaha. With John Elkann (Chairman of Fiat). Fiat owns Ferrari and John came to the Berkshire Managers’ Brunch in the Ferrari behind us. I left a gap between John and me so we didn’t cover the logo!

 

Warmly,

 

Mohnish Pabrai

 

Cheers!

[plato1976]

At this moment, to make it a really large position, I only need to understand the reason of this market ineffciency ...

looks like it's just the Euro drag but we could be missing sth important

Tried my best to kill this idea but seems it will survive in a very pessimistic environment

 

In case you guys didn't read:

 

 

http://www.gwinvestors.com/Main/Blog/Entries/2013/5/2_Fiat_SpA_(F_IM)__The_Bottom.html

 

Thanks for the update.

 

I must say that this stuff really baffles me. What am I missing here? The value of Ferrari alone is equal to the current share price and a conservative value of the Chrysler stake is €5.80 per Fiat share...Thats the downside scenario. What I found particularly interesting was that they actually discussed this with Marchionne:

 

The Agnelli Family (which owns 31% of Fiat through Exor SpA [EXO IM]) and venerable CEO Sergio Marchionne (history of turning around SGS SA, Fiat Industrial, Fiat in 2004, and of course Chrysler) have purposefully kept Fiat’s debt structure totally unsecured, with the ability to sell or distribute assets freely.  In our meeting with Marchionne last summer, he suggested in a nightmare European scenario, the highly profitable South American operations of Fiat could be sold to Chrysler and European operations simply shut-down to stop the bleeding.  A distribution of Ferrari stock, which alone is worth roughly the same price as Fiat’s stock today (using recent Aston Martin sale metrics), is not restricted by Fiat’s bond indentures, and has been discussed as likely after the merger between Chrysler and Fiat.

 

The valuation does not touch specifically on the potential value that Marchionne & co might create for Fiat shareholders by getting a good deal for the rest of Chrysler in terms of purchase price and funding. Bear in mind that the price of the stake actually has a ceiling as according to the equity recapture option.

[fareastwarriors]

Some of you may like this:

 

Hi Sanjeev,

 

...Taken on Sunday morning in Omaha. With John Elkann (Chairman of Fiat). Fiat owns Ferrari and John came to the Berkshire Managers’ Brunch in the Ferrari behind us. I left a gap between John and me so we didn’t cover the logo!

 

Warmly,

 

Mohnish Pabrai

 

Cheers!

 

 

Who is the guy on the left? For a second there, I thought he was Michael Burry...

[Sportgamma]

Some of you may like this:

 

Hi Sanjeev,

 

...Taken on Sunday morning in Omaha. With John Elkann (Chairman of Fiat). Fiat owns Ferrari and John came to the Berkshire Managers’ Brunch in the Ferrari behind us. I left a gap between John and me so we didn’t cover the logo!

 

Warmly,

 

Mohnish Pabrai

 

Cheers!

 

Parsad,

 

Don´t mean to pry (read: I actually do mean to pry), but mind elaborating on why Mohnish found the urge to share him meeting Elkann. I´m guessing he met lots of interesting people last weekend (read: have you guys been discussing Fiat perchance?).

 

Man, would I have wanted to observe those two talking...