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| Considerare l'aritmetica |
| Rob Cox / May 07, 2009, 00:46 IST |
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It’s easy to see why Fiat Group is mulling a spin-off of its car business. The Italian industrial company’s alliance with Chrysler is a bankruptcy judge’s gavel away from fruition. And a deal could be in the works to acquire General Motors’ Opel division. An enlarged and independent Fiat Auto, with an acquisition currency of its own, would be in pole position to lead the car industry’s global consolidation.
Yet investors aren’t ascribing a whole lot of value to Fiat boss Sergio Marchionne’s grandiose plan. True, the stock has more than doubled since February, when he staked his claim in earnest to Chrysler’s assets – from about E3.50 to E8.09 on Tuesday. But do a little arithmetic, and it looks like the value of what might be shaping up to be one of the world’s biggest carmakers is a tiny E5.5bn.
The calculation comes from backing out the non-auto parts of the Fiat Group. Fiat is much more than a carmaker. In addition to churning out sporty Alfa Romeos and cheerful Cinquecentos, the group, long controlled by the Agnelli family, manufactures trucks, robots, auto parts, tractors and earthmovers, not to mention deluxe Ferraris and Maseratis.
So an independent Fiat Auto is Fiat Group less everything else in the conglomerate. Start with Case New Holland. An 11% sliver of the agricultural and construction equipment maker is quoted. Its market cap pegs Fiat’s 89% stake at about E2.8bn.
Next comes truckmaker Iveco. Valued at around the same multiple of sales as its quoted European rivals, the Swedish Volvo and German Man, Iveco is worth around E3.5bn.
Turn then to the car-related businesses. Fiat owns several parts makers – including the power train business, Comau robotics, Magneti Marelli components and the Teksid foundry. They’re worth another E4bn, according to Credit Suisse. Then there are sexier Ferrari and Maserati sports cars. They should generate E200m of operating income between them annually, Citigroup estimates. That should be worth at least E2bn to Fiat.
Add the pieces up and subtract Fiat’s debt and other liabilities, which Morgan Stanley pegs at about E8bn. Compare that to Fiat Group’s market cap and the result – E5.5bn – is the implicit value investors are ascribing to Fiat Auto and its ambitions.
On the face of it, that looks incredibly low. For example, it is just 0.25 times the car group’s 2009 revenues of E21.7bn, as estimated by Morgan Stanley. French rivals Peugeot and Renault command enterprise values that are two and three times sales, respectively.
Sergio Marchionne, Fiat’s ambitious boss, might argue that his car company should be worth much more. The Italian operations are losing money right now but in much better shape than they have been for years. And there is so much more on the horizon. There is the option to take control of Chrysler over the next few years, plus the potential to crunch costs with Opel.
Perhaps – but the road to success is littered with obstacles. The Chrysler deal is still hung up in bankruptcy court. Even if furious creditor objections are overturned and Fiat can get to work in the next few weeks, there’s no guarantee that Marchionne can turn around a business that has been in trouble for most of the last three decades.
Opel is in better shape than Chrysler, but that means the German government could find other bidders it likes more than Fiat. And even if Fiat prevails, the victory may come with expensive promises to keep jobs and factories in Germany. That may reduce the scope for synergies, not to mention making it hard to reduce the overcapacity which plagues the European auto industry.
Finally, there’s the human element. Renault’s Carlos Ghosn managed to run both Nissan and the French carmaker with aplomb – for a while. But even he has struggled in recent years. Marchionne may have the strength of multiple Italian espressos to keep him going, but the task of running three challenged companies sets a new managerial precedent. With so many risks ahead, investors are right to keep the brakes on their valuation expectations for Fiat.
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