Ferrari's $10 Billion IPO
Ferrari is set to separate from the parent company, Fiat Chrysler Automobiles NV (NYSE:FCAU), through an IPO. The breakup is expected to be fully completed next year. Fiat intends to sell 9% of its stake in Ferrari in the IPO and hopes to use the funds generated through the transaction to finance its expansion.
A time has come when Fiat Chrysler Automobiles NV (NYSE:FCAU) feels it is prudent to have Ferrari start a life of its own as a publicly traded company. The IPO will see Fiat selling 17.2 million shares in Ferrari at the price of between $48 and $52. The IPO is expected to value Ferrari at $9.82 billion.
Ferrari intends to list on the New York Stock Exchange under the ticker symbol “RACE”.
Insiders say that they expect oversubscription for Ferrari’s shares in the IPO. They estimate that supply of shares in the IPO could 10 times smaller than demand.
The funds unlocked through the spinoff of Ferrari are expected to fund Fiat Chrysler Automobiles NV (NYSE:FCAU)’s expansion program. The Ferrari parent company has outlined an ambitious investment program that includes global expansion of models such as Jeep, Maserati and Alfa Romeo. Fiat’s expansion program is expected to consume $54.5 billion. Additionally, the funds from Ferrari IPO are expected to help Fiat cut its debt burden as CEO, Sergio Marchionne, has hinted.
Enterprise value of $12 billion
Ferrari will be allocated as debt from the parent as it starts a new life alone. Fiat is expected to transfer 2.8 billion euros in debt to Ferrari. Another 2.128 billion euros in debt will be issued by Ferrari to some third-parties. If all the debts in Ferrari are accounted for, the supercar company is expected to have an enterprise value of $12 billion.
Sticking to the culture of powerful engines
As a standalone company, Ferrari does not intend to follow the emerging trend of electric engines. According to CEO, Amedeo Felisa, they will continue to concentrate on producing cars with powerful engines, because that is what their customers want. Nevertheless, Ferrari intends to create an artificial shortage for its cars by limiting the number of vehicles it manufactures. The strategy is to keep supply of Ferrari cars below demand so as to maintain its exclusivity.