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Fiat Chrysler Automobiles NV has agreed to sell its high-tech auto parts unit, Magneti Marelli, to Calsonic Kansei, of KKR & Co., as part of a 6.2 billion euro deal ( $ 7.1 billion), constituting the first major agreement for the Italian-American group. automaker under the new general manager Mike Manley.
Beda Bolzenius, President and CEO of the Japanese acquirer, will lead the merged entity, which will be called Magneti Marelli CK Holdings and will be based in Japan. The company will supply components to Fiat Chrysler as part of a multi-year agreement and will maintain its Italian business in Milan, according to a statement released Monday.
Shares of Fiat Chrysler (fcau) rose 7.2% in Milan after a late opening. The stock rose 5.2% to 14.14 euros at 9:12 local time. The selling price is more than one billion euros higher than the average valuation of the analyst, said Mediobanca in a note.
The agreement, announced Sunday by Bloomberg News, creates a manufacturer of auto parts generating an annual turnover of more than 17 billion dollars and employing about 65,000 people from Tokyo to Milan. This sale is an important step for Manley, who took over Fiat Chrysler a few days before the death of his predecessor, Sergio Marchionne, in July. It is also the first merger and acquisition operation overseen by President John Elkann since the death of his so-called maestro transaction.
Marchionne, who initially favored the separation of the business by distributing shares to investors, said Fiat was ready to change its mind for a "big check". Fiat Chrysler opted for a sale of Magneti Marelli instead of being listed on the Milan Stock Exchange after stock market the situation has deteriorated due to global trade tensions and political uncertainty in Italy, as well as warnings about the profits of car manufacturers and suppliers.
"The transaction recognizes the entire strategic value of Magneti Marelli and is another milestone in our relentless commitment to value creation," Manley said in a statement.
Elkann, the manager of the family company Agnelli that controls Fiat Chrysler, has been directly involved in the talks since Marchionne, who began talks earlier this year, died suddenly, according to people close to the case. On Sunday, the automaker's shares had lost about 20 percent since Marchionne's death, as Italian stocks entered a bear market after the country's new populist government failed to win investor confidence.
Conditions of deterioration
The actions of car manufacturers and their suppliers have also resulted in trade tensions and other headwinds. Daimler AG (ddaif) on Friday issued its second profit warning in four months and automaker Continental AG (cttay) trimmed its outlook in August. In September, Volvo Cars delayed plans to sell shares, saying the timing was "not optimal" and that Aston Martin's shares have fallen since it went public.
With the sale, Manley and Elkann continue Marchionne's strategy of generating shareholder value by separating businesses from the automotive division. Under Marchionne, the value of Fiat Chrysler has been multiplied by 10, thanks to the spin-off from supercars manufacturer Ferrari NV and the truck and tractor division CNH Industrial NV.
The simplification of the company allows Manley to concentrate on the construction and sale of cars and to simplify Fiat Chrysler even less in the event of a possible merger.
Fiat Chrysler, which has not paid dividends since its inception in 2014, could now consider rewarding its shareholders. According to Joel Levington, a senior credit analyst at Bloomberg Intelligence, the sale of the spare parts unit could yield more than $ 2 billion in dividends to Fiat Chrysler.
Japanese companies have announced acquisitions of more than $ 200 billion this year, an increase of 60% over the same period in 2017, according to data compiled by Bloomberg. The volume of transactions has already reached the highest annual total in more than ten years, the data show.
As part of the negotiations, Fiat Chrysler rejected an offer as the two parties were split on the price of about one billion euros, sources said close to the record in September. Before continuing talks with KKR (kkr), the automaker has sparked interest from other potential buyers, including Apollo Global Management, Bain Capital and an unidentified Asian parts supplier, sources close to the record said in August .
Goldman Sachs Group Inc., UBS Group SA and the Dentons law firm were among the advisers.
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