FCAU - Fiat Chrysler Automobiles

[jay21]

Former Hyundai Motor America boss and current TrueCar President John Krafcik speculates that a VW & FCA merger would be "highly profitable" and a "absolutely brilliant combination".

 

http://www.autoblog.com/2014/11/06/vw-fiat-chrysler-merger-brilliant-krafcik/

 

I had this discussion with a friend the other day re: a possible VW and FCA combo. 

 

It does seem unlikely to happen any time soon, though, because Sergio isn't going to let VW buy the company for a song.  The price of the stock probably needs to go up first.

 

It would be cool if they did some type of CHTR/Comcast deal.

 

Spin out Ferrari. Legacy Fiat merges with VW. Chrysler becomes independent again. That might kind of sorta make sense?

 

I dont think it anything will happen but its cool to think about all the possibilities.

 

I believe a large part of the reason for VW to do a deal would be to access Ram and Jeep (and maybe the rest of US brands as well, since they don't really have a strong presence in North America), so would highly doubt they would do it without the Chrysler division. I agree anything happening in the near future (~1 year) seems very unlikely.

 

I thought Alfa and Maserati would be most attractive to VW (always hear they want Alfa). But that also make sense.

[phil_Buffett]

i red the Bloomberg article. they stated that ferrari will give a dividend to shareholders before the spin off, is this right?

 

or do Bloomberg mean that fiat as a Company will receive the cash from ferrari?

 

fiat will receive 2,25b€.

[buylowersellhigh]

FCAU will receive the cash from Ferrari before spin-off

[compounding]

Former Hyundai Motor America boss and current TrueCar President John Krafcik speculates that a VW & FCA merger would be "highly profitable" and a "absolutely brilliant combination".

 

http://www.autoblog.com/2014/11/06/vw-fiat-chrysler-merger-brilliant-krafcik/

 

I had this discussion with a friend the other day re: a possible VW and FCA combo. 

 

It does seem unlikely to happen any time soon, though, because Sergio isn't going to let VW buy the company for a song.  The price of the stock probably needs to go up first.

 

It would be cool if they did some type of CHTR/Comcast deal.

 

Spin out Ferrari. Legacy Fiat merges with VW. Chrysler becomes independent again. That might kind of sorta make sense?

 

I dont think it anything will happen but its cool to think about all the possibilities.

 

I believe a large part of the reason for VW to do a deal would be to access Ram and Jeep (and maybe the rest of US brands as well, since they don't really have a strong presence in North America), so would highly doubt they would do it without the Chrysler division. I agree anything happening in the near future (~1 year) seems very unlikely.

 

I thought Alfa and Maserati would be most attractive to VW (always hear they want Alfa). But that also make sense.

 

Yes they have been after Alfa for a few years I believe (although the interest seems to have faded if you can draw any conclusions from the absence of approaches recently).

 

To me though, Alfa and Maserati seem like niche players in segments were VW are already excellent, whereas the Chrysler division would be more complementary both from a geographic and from a product point of view.

[phil_Buffett]

FCAU will receive the cash from Ferrari before spin-off

 

 

ok thanks. got it wrong at first.

ferrari will rise big time after the ipo. and share Price action of fiat the last weeks is very very nice

[merkhet]

So some quick math on what we know about the Ferrari deal so far.

 

Ferrari currently makes about 7,000 vehicles a year and generates roughly $0.7 billion in EBITDA, so FerrariCo should be worth around $7 billion in EV. If it's going to spit out $2.8 billion in a cash dividend to FCA Group before spinning out, then the equity value should be around $4.2 billion.

 

10% goes to Enzo's descendant.

10% goes to FCA group.

80% gets spun off to FCA Group shareholders, so we get around $3.36 billion or $2.69 per share.

 

Of course, if the market decides to look at this from a rosier perspective, then we might get credit for the 10,000 vehicles a year in capacity, meaning $1 billion in EBITDA or $10 billion in EV and $7.2 billion in value to the shareholders or $5.76 per share.

 

Does that sound about right to everyone?

[krazeenyc]

So some quick math on what we know about the Ferrari deal so far.

 

Ferrari currently makes about 7,000 vehicles a year and generates roughly $0.7 billion in EBITDA, so FerrariCo should be worth around $7 billion in EV. If it's going to spit out $2.8 billion in a cash dividend to FCA Group before spinning out, then the equity value should be around $4.2 billion.

 

10% goes to Enzo's descendant.

10% goes to FCA group.

80% gets spun off to FCA Group shareholders, so we get around $3.36 billion or $2.69 per share.

 

Of course, if the market decides to look at this from a rosier perspective, then we might get credit for the 10,000 vehicles a year in capacity, meaning $1 billion in EBITDA or $10 billion in EV and $7.2 billion in value to the shareholders or $5.76 per share.

 

Does that sound about right to everyone?

 

My guess is that the Ferrari multiple will be 12x - 15x (instead of 10). I know that sounds insane in the auto space -- but that's my guess.

[compounding]

So some quick math on what we know about the Ferrari deal so far.

 

Ferrari currently makes about 7,000 vehicles a year and generates roughly $0.7 billion in EBITDA, so FerrariCo should be worth around $7 billion in EV. If it's going to spit out $2.8 billion in a cash dividend to FCA Group before spinning out, then the equity value should be around $4.2 billion.

 

10% goes to Enzo's descendant.

10% goes to FCA group.

80% gets spun off to FCA Group shareholders, so we get around $3.36 billion or $2.69 per share.

 

Of course, if the market decides to look at this from a rosier perspective, then we might get credit for the 10,000 vehicles a year in capacity, meaning $1 billion in EBITDA or $10 billion in EV and $7.2 billion in value to the shareholders or $5.76 per share.

 

Does that sound about right to everyone?

 

Ferrari has €519 m of net cash today, so the net debt will be lower than $2.8 b: more like $2.1 b, after the distribution and the IPO. So the equity part of the EV will be higher than you stated. Also I believe Sergio said Ferrari's EBITDA is somewhere around 0.7b in euros, not dollars, so the amount would be 1.24x larger. Otherwise it sounds reasonable to me.

 

Edit: attached the pro forma balance sheet

[merkhet]

Ah, you're right -- Marchionne mentioned the numbers in Euros and not USD. So with some slight adjustments, you'll get around between $3.86 and $7.70 per share in Ferrari, leaving FCA, once again, woefully undervalued at current prices ex-Ferrari.

 

I suspect that there will be some frenzy from a Ferrari IPO, but I think 12x to 15x is a bit over the top -- and folks can have my shares at those prices.

 

(Just to be clear, kraze, you were talking about Ferrari's post-split multiple, right? Not their pre-split multiple?)

[merkhet]

Wow. I clearly need some coffee this afternoon since my calculation for $1 billion EUR in EBITDA didn't adjust for the fact that shareholders only get 80%.

 

Third time is a charm.

 

@ €700m, $3.92 per share

@ €1b, $6.32 per share

 

[krazeenyc]

Ah, you're right -- Marchionne mentioned the numbers in Euros and not USD. So with some slight adjustments, you'll get around between $3.86 and $7.70 per share in Ferrari, leaving FCA, once again, woefully undervalued at current prices ex-Ferrari.

 

I suspect that there will be some frenzy from a Ferrari IPO, but I think 12x to 15x is a bit over the top -- and folks can have my shares at those prices.

 

(Just to be clear, kraze, you were talking about Ferrari's post-split multiple, right? Not their pre-split multiple?)

 

Maybe I'm super bullish on Ferrari but...

 

Ferrari makes cars, but I think you should forget about auto ebitda multiples -- even luxury auto ebitda multiples.  The Ferrari business model pretty much has nothing to do with volume auto makers.

 

Here's why I give them this "bit over the top multiple".

 

1) Their pricing power is RIDICULOUS -- how many companies do you know that have the pricing power of Ferrari?  I love how they sell a car for $1.4M and their sold out basically the day it goes on sale -- and demand is multiples of what they're selling. Sell a $5M car -- also sold out immediately with a long wait list.

 

2) They have not been operating to max profitability over the short term. In fact as their revenues and income grow, they've been choosing to limit production.

 

3) The brand and therefore their licensing arm is ridiculously valuable -- 2013 $75M in 2013 -- my guess is that the margins are in the high 90s for licensing and worth a 20x multiple.

 

To a certain degree, in the short term, Ferrari is earning what it chooses to. If it wanted to have an 850 million Euro Ebitda it could. This kind of business I value very very highly.  The number of disgustingly rich people on the earth will keep growing nicely. Ferrari is a business I would LOVE to own. How many luxury brands can you say are in this class?

 

Not to mention, I kind of expect a frenzy of people wanting to buy in the IPO. Additionally after 2 years Ferrari will be a perennial acquisition target by just about every automaker.  Can you tell I'm bullish on Ferrari?

[merkhet]

I can see your point on Ferrari, and the pricing power certainly is key in something like this. They're unique -- though I'm probably biased because I just don't like Lamborghinis.

 

However, I'm unclear as to how and whether they'll exercise that pricing power going forward.

 

I think about it this way, if I get $X from Ferrari, would I feel more comfortable buying Ferrari at that price or FCA Group at the post-spin price? For me, I'll probably plunge the money back into FCA Group... though I suppose that could change based on various developments...

[LC]

Even if not enacted, untapped pricing power has value.

[merkhet]

Even if not enacted, untapped pricing power has value.

 

You mean to a purchaser who does use the pricing power?

 

Because if never used, it has no value...

[LC]

Even if not enacted, untapped pricing power has value.

 

You mean to a purchaser who does use the pricing power?

 

Because if never used, it has no value...

Possibly, the way I am thinking about it, if there are two companies selling the same product, one with zero pricing power and one with unused pricing power, would I pay the exact same amount to acquire them? Untapped pricing power, even if not used now, can be a valuable lever if in 5 years the market looks completely different. What if competitors totally drop off and Ferrari is the only game in town? Or if they decide to sell "Ferrari auto parts", which could command a premium. I don't know what the future will hold for them, but the fact that they have untapped pricing power today makes them more valuable than a company without.

[bizaro86]

Untapped pricing power has value in that it protects from the downside. Say we have a big recession or some other event that hurts auto sales. If Ferrari is selling only 1/2 the cars they could sell at their current prices, even a large reduction in demand won't hurt their earnings. Whereas a large reduction in demand for the other luxury automakers would probably destroy their earnings as its a high fixed cost business. So a higher multiple is appropriate as the earnings are much more stable.

 

 

[merkhet]

Untapped pricing power has value in that it protects from the downside. Say we have a big recession or some other event that hurts auto sales. If Ferrari is selling only 1/2 the cars they could sell at their current prices, even a large reduction in demand won't hurt their earnings. Whereas a large reduction in demand for the other luxury automakers would probably destroy their earnings as its a high fixed cost business. So a higher multiple is appropriate as the earnings are much more stable.

 

I don't understand. If Ferrari is selling 1/2 the cars they do now @ current prices, their earnings would more than halve (after taking into account some fixed costs).

 

What am I missing here?

[LC]

I think he's saying if volume demand falls, Ferrari may be able to (at least moreso vs. their competitors) raise prices to compensate.

[rmitz]

Untapped pricing power has value in that it protects from the downside. Say we have a big recession or some other event that hurts auto sales. If Ferrari is selling only 1/2 the cars they could sell at their current prices, even a large reduction in demand won't hurt their earnings. Whereas a large reduction in demand for the other luxury automakers would probably destroy their earnings as its a high fixed cost business. So a higher multiple is appropriate as the earnings are much more stable.

 

I don't understand. If Ferrari is selling 1/2 the cars they do now @ current prices, their earnings would more than halve (after taking into account some fixed costs).

 

What am I missing here?

 

If Ferrari, Now, is selling 1/2 the cars they *could* sell…demand could go down by 50% before you’d see any reduction in cars that you DO sell.

[merkhet]

Ah, I see -- so basically if demand for auto sales falls, demand for Ferraris would not fall much if at all -- so the comment that Ferrari is only selling 50% of its capacity at current prices is somewhat irrelevant to the analysis?

 

I mean, look, I understand that Ferrari is a Veblen good. I also understand that it has pricing power as a result of that. That being said, there's a real question as to whether there's a price @ which buying FCA Group is better than buying FerrariCo. -- and if you guys disagree, I'm happy to sell you my FerrariCo shares at a nosebleed price in a swap for your FCA Group shares. :)

[bizaro86]

So apparently that was unclear, I apologize.

 

What I was trying to say is Ferrari has pricing/market power. They could exercise it one of two ways.

1) Sell more cars at the same price

2) Sell the same # of cars for more money

 

Say they sell 8000 cars per year and have a huge waiting list. They could probably raise prices a bunch and still sell 8000 cars, or keep prices the same and expand production to sell say 16000 cars per year. So one could say at the current price demand is 16000 cars per year.

 

However, they don't use that pricing power to help keep up the exclusivity of their brand. My post was arguing that the pricing power has value even if they don't use it.

 

For example, in a big recession maybe demand at the current pricing falls from 16,000 cars per year to 8,000 cars per year. Since they only actually sell 8,000 cars per year, their sales/earnings should remain the same. This provides a bunch of downside protection, imo, and more stable earnings deserve a higher multiple.

[TwoCitiesCapital]

Anybody have an intelligent guess on when they'll start trading LEAPs on this? I'd like to compliment my core position in the common shares some and leverage my exposure to the company pre-spinoff.

[nikhil25]

Fiat Chrysler Automobiles (FCAU) European Sales Rose 8.4% in Oct.

http://www.streetinsider.com/Corporate+News/Fiat+Chrysler+Automobiles+(FCAU)+European+Sales+Rose+8.4%25+in+Oct./10024694.html

 

Fiat Chrysler Automobiles (NYSE: FCAU) posted October sales up 8.4% year-over-year versus 6.2% for the industry overall. All FCA brands reported sales gains, with Fiat up 5.2%, Lancia +3.9%, Alfa Romeo +4.0% and Jeep +74.0%. The 500 and Panda remained the two top-selling vehicles in the A segment, with a combined share of 30.1% for October, and the 500L led the Small MPV segment with a 22.2% share for the year to date.

[muscleman]

http://www.themalaymailonline.com/drive/article/fiat-chrysler-puts-its-eggs-on-a-revamped-gold-standard-300

 

The new Chrysler 300 is coming out today. I am looking forward to it. :D

 

[sampr01]

http://www.bloomberg.com/news/2014-11-19/fiat-chrysler-to-unveil-new-alfa-romeo-model-in-italy-in-june.html