FCA Pays Magneti Marelli Dividend As Profits Jump.
97% Of Profit From North America, Europe Loses €25 Million.
“Maserati looks broken – a 2.4% margin in Q3 is better than Q2 but essentially all three product lines have now rolled over”
Fiat Chrysler Automobiles (FCA) managed to sell its Magneti Marelli subsidiary for €6.2 billion, at the high end of expectations, and shareholder hopes that this might generate a big special dividend were borne out as FCA announced its 3rd quarter earnings.
FCA’s announced adjusted earnings before interest and tax (EBIT) in the 3rd quarter rose 13% to €1.99 billion, compared with the same period last year, then said it would pay €2 billion as a special dividend to shareholders because of the Magneti Marelli sale to Calsonic, a Japanese supplier owned by KKR.
FCA maintained its profit forecast for the year after lowering it in the 2nd quarter.
Bernstein Research analyst Max Warburton liked the Calsonic deal.
“The deal was widely expected but the headline price looks to have exceeded expectations; previous reports had said KKR offered €5 billion. However, the basis of the €6.2 billion figure is not clear at this stage – we await details of debt, scope, timing and other possible factors,” Warburton said in a report.
“The deal looks a positive for FCA (and) may act to refocus investor interest on (the company). It’s a cheap stock, with profits driven by the U.S. market and U.S. product cycle, with less exposure to the Chinese and European (WLTP) issues that are impacting other (manufacturers) in the sector,” Warburton said.
€2 billion more
Investment bank Morgan Stanley said the sale proceeds from KKR represented about €2 billion more than it had expected. The deal might spark other lucrative selling off of subsidiaries.
“(This is) a very significant strategic move by FCA that should trigger a bounce in the stock. The sale price is worth approximately 30% of FCA’s market cap and allows management to look at further areas of potential strategic value – Maserati/Alfa, Comau, Jeep – to optimize group structure,” Morgan Stanley analyst Adam Jonas said.
The Financial Times’ Lex column looked at the deal from KKR’s perspective, and saw some flaws.
“The risk is that KKR/Calsonic pays a premium price exactly at a time when the car industry is hitting a pain point past peak annual sales and just as new forms of transportation begin reaching critical mass. Car sales are slowing everywhere and ongoing trade frictions put pressure on carmakers,” Lex said.
After the results, Bernstein Research’s Warburton pointed that of the total EBIT, 97% came from North America, while Europe lost €25 million.
“Maserati looks broken – a 2.4% margin in Q3 is better than Q2 but essentially all three product lines have now rolled over and the business – and its volume, pricing and distribution plans – surely need a rethink,”
Warburton said.
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