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A share of Ferrari is for sale. Here's what it really means
Paul Horrell reports on Fiat Chrysler Automobiles' initial public offering
You can now buy a share of Ferrari. But the company isn’t really for sale, and nothing much will change. These are the contradictory messages from this morning’s initial public offering (IPO).
Some 10 percent of the company is being put up for sale by parent company Fiat Chrysler Automobiles. For an expected $48 to $52 (£31-34) you could buy one of 17 million shares being floated. Sounds like a cool thing to hang on your wall.
The sale is happening because FCA’s owners want to find out what Ferrari is worth. You only know the true price of something when it’s sold, or when a part of it is sold. If the shares indeed reach the price FCA hopes, then Ferrari would have a $10bn (£6.5bn) price on it.
FCA’s CEO Sergio Marchionne thinks Ferrari is so valuable because it’s a luxury goods company, and these are typically valued at 10 times their turnover. Car companies are valued by stock markets much more weakly.
After the initial flotation, FCA plans to sell the rest of Ferrari’s shares – apart from the 10 percent already owned by Enzo Ferrari’s son Piero.
Hang on, so the whole of Ferrari will be sold? Not in the way you might think. Those remaining Ferrari shares will be sold to existing FCA shareholders. So they’ll be buying what they already own, in a sense. And the main shareholder of FCA is the Agnelli family company, EXOR.
So overall control of Ferrari won’t actually change, because of the size of EXOR and Piero Ferrari’s holding. So don’t expect an outside takeover.
EXOR and other FCA shareholders are doing all this to push up the size of their paper fortune. They think that the market isn’t taking Ferrari into account when it currently values FCA. They are assuming that once all this is over, FCA’s shares will not have changed price – even though Ferrari has been stripped out of FCA.
Think of it like this. Someone owns a house and garden (FCA including Ferrari), and sells a corner of the garden (Ferrari) off as a building site. And yet at the end of it the house and smaller garden are worth just what they always were. It’s odd but it happens in the stock markets, and phrases like ‘spinoff’ and ‘unlocking value’ punctuate the financial pages. What’s even odder here is that FCA’s shareholders will be selling the portion of the garden to themselves.
There you are then. It’s all about the financial markets, and about the long-term financial strength of FCA and its ability to borrow. And not a lot to do with red supercars or an F1 team.