Fiat Chrysler (FCAU) Down -35 Percent after Ferrari Spinoff

Shares of the Fiat Chrysler Automobiles N.V. (FCAU) were trading down -4.88 or -34.88 percent to $9.11 per share in Monday’s premarket after the company spun off a majority interest in its Ferrari unit to shareholders late Sunday. Fiat Chrysler stock closed at $13.99, down -0.16 or -1.13 percent in Thursday’s regular trading session.

London, UK based Fiat Chrysler Automobiles was originally formed when Chrysler emerged from bankruptcy proceedings in 2009.
The company was then acquired by a United Auto Workers pension fund, Fiat and the Canadian and United States governments, which became Chrysler’s principal owners. Fiat subsequently bought the other owners’ stakes acquiring 41.5 percent of the company from the UAW in January of 2014, making it a wholly owned subsidiary.

Fiat Chrysler or FCA as it is also known, is the seventh largest automobile manufacturer in the world, selling vehicles under the Alfa Romeo, Fiat, Ferrari, Chrysler, Dodge, Jeep, Lancia and Mopar brands to name just a few. The company merged Fiat S.p.A. to form a Dutch based holding company headquartered in London in 2014 and its stock is dually listed on the New York Stock Exchange under the FCAU acronym and the Borsa Italiana in Milan under the FCA acronym.

Fiat Chrysler spun off the remaining 80 percent of its interest in Ferrari N.V. (RACE) on Sunday, ending 30 years Ferrari was under its exclusive control. Investors received one share of Ferrari stock for every 10 shares of Fiat Chrysler stock owned.

The Ferrari N.V. shares began trading Monday morning on the Milan Bourse but have been trading on the NYSE since October of 2015. Fiat Chrysler originally sold 17,175,000 shares of Ferrari or about 10 percent of its holdings in an initial public offering at $52 per share on October 26th of 2015. The Ferrari family continues owning 10 percent of the company.

With the completion of Fiat Chrysler’s distribution, Ferrari N.V. is now an independent company and is ranked as one the most profitable automakers of its kind. Ferrari’s vehicles command exorbitant prices with a Berlinetta coupe costing over $320,000. Sergio Marchionne, Fiat Chrysler’s Chief Executive Officer and also chairman of Ferrari has said that the company is a luxury brand and not an automaker.

Fiat Chrysler will now have to continue without one of its biggest money makers, Ferrari made up 12 percent of Fiat Chrysler’s earnings. Without the company’s crown jewel, some analysts are concerned that Fiat Chrysler may not be worth as much as its current value.

Nevertheless, other analysts are of the opinion that Fiat Chrysler stock has been overly punished due to the market’s focus on the debt leverage needed for the company’s $52B five year expansion plans. Fiat has already made cutbacks to its plan due to slower demand in China and Brazil.

Fiat Chrysler shares are off significantly reflecting the enterprise value of the 80 percent Ferrari stake it distributed, while Ferrari shares are also off -0.97 or -2.02 percent in this morning’s premarket to $47.03 per share.

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Published on Jan 4, 2016
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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