Ferrari Races Into IPO

Ferrari Races Into IPO

October 9, 2015 — Sergio Marchionne, showing confidence in Ferrari, decides to move forward with a planned IPO of the luxury brand despite a volatile stock market that has forced numerous companies to recently postpone going public.

Ferrari N.V. filed amended IPO papers this morning with the Securities Exchange Commission expecting to generate anywhere from $48 to $52 per share for 17.2 million shares — or 10% of its overall shares. At that price, Ferrari will be valued between $9 billion – $9.8 billion. Add in Ferrari’s debt, which it will assume, and the Italian automaker’s enterprise value jumps to nearly $12 billion.

Ferrari will be listed on the New York Stock Exchange as RACE and could start trading as early as October 21.

Fiat Chrysler Automobiles, which owns 90% of Ferrari, is making 10% of its shares available as part of the IPO. FCA hopes to raise as much as $890 million in cash from the IPO. It plans to make the rest of its 80% share in Ferrari available to its shareholders sometime in 2016, raising potentially another $2.5 billion or more in cash. Piero Ferrari,son of founder Enzo Ferrari, owns the other 10% of Ferrari.

Despite FCA’s challenges (Fiat Chrysler’s Big Vegas Show a lot of Hype; Tough Times Ahead for Chrysler Dealers), Marchionne has brilliantly played the pending Ferrari IPO into increasing FCA’s share price 76% over the last year. 

FCA is spinning Ferrari off to generate much-needed cash to help finance an ambitious $54 billion product plan over the next few years. At least, that’s the official word. Much of what FCA makes from the IPO will go toward paying down FCA’s burdensome debt, including a more than $7 billion payment due in 2017.

Although the cash from Ferrari will help, FCA is still in bad shape bleeding significant cash — and the new contract with the UAW, however it looks, will hurt the bottom line even more. The gaudy 66 consecutive months of sales increases do not hide the fact FCA is facing huge problems. There will be more financial fallout from NHTSA due to its under reporting of deaths and injuries from accidents involving their vehicles. We’re hearing it’s a deep and systemic issue for Fiat Chrysler.

Once the sales numbers plateau — and they will — the challenges will become much more evident.

Meanwhile, Ferrari will have some challenges.

Meeting environmental CAFE mandates will be harder as the company no longer will have the cover that Fiat Chrysler would have provided with much smaller vehicles as part of the portfolio.

Secondly, Ferrari built just over 7,000 vehicles in 2014. Keeping production low helps protect the exclusive nature of the brand. Marchionne argues production can be increased to 10,000 vehicles over the next couple of years without sacrificing the aura of Ferrari. Markets such as China which are ripe for for luxury brands, will drive the additional production. We’ll see whether Marchionne is right.




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