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Fiat shares slid after Ferrari parts ways with it

Jan 06, 2016 01:28 AM EST

Fiat Chrysler Automobiles NV and Ferrari have parted ways to continue journey of business on their own. After separating, Ferrari stock was trading flat, while Fiat Chrysler shares shed one-third in market capitalization. Without Ferrari, the operational challenges for Fiat Chrysler are exposing its weakness.

Fiat Chrysler has distributed its 80 percent holding in Ferrari to shareholders. Fiat Chrysler had exclusive control over the maker of the iconic cars Ferrari for 30 years. The Ferrari car is priced about $273,000 (€250,000). 

The Wall Street Journal (WSJ) reports that after spin off with Ferrari, Fiat Chrysler will focus on its growth plan to 2018. Sergio Marchionne, Chief Executive, Fiat Chrysler, has charted an ambitious €48-billion investment plan. Fiat Chrysler is also keen on jeep and Alfa Romeo brands.

Ferrari made its debut trading in Milan on Monday (4 January 2016) after listing on New York Stock Exchange (NYSE) in October 2015. Now, Ferrari is free from mass-market associations and opening a new chapter as a standalone company. Ferrari is popular for its Formula-1 racing machines and coveted red roadsters. 

Fox News reports that Ferrari's stock under the RACE ticker opened at euro 43 in debut trading and eased to euro 41.75. After separation from Fiat Chrysler, the Angelli family holding Exor SpA controls Ferrari. Agnelli family also holds 23.5 percent stake in Fiat Chrysler. Piero Ferrari, son of the company's founder Enzo Ferrari, holds 10 percent stake.

Sergio Marchinonne, CEO of Fiat Chrysler Automobiles, is also Chairman of Ferrrari. His offer to General Motors to create synergies and cut down costs was rebuffed. Later Marchinonne didn't find any more attractive merger proposals. Marchinonne repeatedly called for consolidation, but couldn't clinch any deal. He said the consolidation may not take place during  his tenure, which lasts till 2018.

As part of its targets for 2018, Fiat Chrysler will revamp Alfa Romeo, Jeep and Maserati brands. The updated product plan will be finalized this month, as reported by Fortune. Ferrari shares fell 20 percent since listing on Wall Street in October 2015. Analysts question how the capital intensive car maker with small volume can sustain the high valuations going forward.

Parting ways with Ferrari will have impact on the bottom line of Fiat Chrysler. Ferrari accounted for 2.6 percent of total revenues at Fiat Chrysler during the third quarter of 2015 and contributed 11 percent to the adjusted operating profits.

As Marchionne said several times that Ferrari spin off would enable Fiat Chrysler to engineer a merger. Potential partners are ready on facilitating a deal. 

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