Fiat Chrysler stated on Thursday its board had tasked management to proceed with spinning off Magneti Marelli and issuing shares in a new holding for 99-year old parts business to FCA investors.
The spin-off is part of a strategy by FCA Chief Executive Sergio Marchionne to “purify” the Italian-American automaker’s portfolio and to unlock value at Magneti Marelli, which sits within FCA’s components unit along with robotics specialist Comau and castings firm Teksid, and which experts say could be worth from 3.6 and 5 billion euros ($4.4-6.1 billion).
“The separation will provide value to FCA shareholders, while giving the operational flexibility necessary for Magneti Marelli’s strategic growth in the future,” Marchionne stated.
Magneti Marelli, which employs about 43,000 people and has operations in 19 countries, is a diversified components supplier known for lighting, powertrain and electronics and its spin-off is associated with a five-year business plan FCA is due to present on June 1.
“The spin-off will also permit FCA to further focus on its core portfolio while at the same time enhancing its capital position,” Marchionne included.
Marchionne has a significant history of such moves. The 65-year-old was also heavily involved with the spin-off and listing of trucks and tractor maker CNH Industrial and supercar brand Ferrari.
The Magneti Marelli separation is expected to be finished by the end of this year or early 2019, with shares in the company expected to be listed on the Milan stock exchange.
FCA’s advisers at first looked at a potential initial public offering for the business to raise finance to cut FCA’s debt, but the Agnelli family – FCA’s major shareholder – were put off by low industry valuations and did not want their stake in Magneti Marelli to be weaken, three sources knowledgeable about the matter informed Reuters last month.
Magneti Marelli has often been promoted as a takeover target and FCA has fielded interest from different rivals and private equity firms over the years.
South Korea’s Samsung Electronics made a bid approach in 2016, however, negotiations fell through as it was only interested in parts of the business, other sources stated.