Many of you will know that there was a great deal of airplay regarding the IPO of Ferrari, however how many people know the structure of the deal and what has happened over the past couple of weeks – the media exposure has dropped away completely!
So, FIAT Chrysler Group (FCA) decided, actually the boss Sergio Marchionne decided, to float some of the stock of Ferrari to raise some dollars for the group. Remember that Marchionne has tried to shop FCA around recently, notably to GM because he sees a difficult few years coming up in the industry. Having some extra cash would be useful for product development and launches of some important models across the group, such as the new Alfa Romeo Giulia or the new Maserati SUV.
FCA has owned 90% of the Ferrari brand since 1988 when Enzo Ferrari passed away, they had owned 50% since 1969. Through careful branding, marketing and of course their racing programs, they have built a massive brand awareness – probably the biggest and best ever. They have consistently ensured that they only release a “handful” of cars to the market each year. By a handful I mean just over 7,200 sales in 2014, compared with over 120,000 Porsche sales, so like Morgan, there is a desire to own a Ferrari through exclusivity. This is heightened when we talk about the true supercars such as the Enzo and LaFerrari where less than a handful are made!
FCA created a company called New Business Netherlands NV, based in Italy but incorporated in the Netherlands (there may be tax reasons for this) which in effect is Ferrari NV and is the front for the old Ferrari brand, so it designs, manufactures and sells the cars plus all the valuable merchandising that they sell each year. In addition, Ferrari NV are now the providers of the physical engines that Maserati and Alfa Romeo buy to fit into their cars.
The old Ferrari is transferred into the new Ferrari with the existing ownership levels retained – FCA 90% and Ferrari family 10%. Next FCA chose a ticker symbol of RACE in preparation of floating 10% or 17,175,000 shares within a price range of $48-$52 each. Apparently they wanted RED but couldn’t get it – some fans wanted ENZO! At $52 per share that would raise $893M for FCA. The plan was to then spread the remaining 80% of FCA’s share to its own shareholders from next year – this naturally will increase the amount of Ferrari stock available for purchase.
The amount of stock was limited, as they do with their production, to ensure exclusivity and to keep the price within the range they wanted.
On the 21st October the stock floated on several exchanges: the New York Exchange and on exchanges in Switzerland, Germany and the UK, at $52 per share and the minimum of 17M shares was reached quickly – the stock was oversubscribed, so in effect 18,892,150 were released raising the required billion dollars. FCA took a cash injection straight away to help fund new plans and some of the money was used to manage the $2B of debt that Ferrari was holding – this had increased over the past year.
Interestingly, FCA’s own stock dropped a little bit on the day, presumably because investors were concerned about losing a cash cow. Part of the IPO documents included a statement that Ferrari planned to increase production to 9,000 units a year by 2019.
Current Share Price
It’s been just over two weeks since the IPO and the media have dropped the story. Currently the price is off a mere 26c from the float, pretty good really and it has bounced well within the $48-$54 range that the company wants. Next year, I believe we will see the dribbling of stock on to the market to ensure that the price remains high as the remaining 80% is handed out and the stock will be held just like the cars – by collectors who will only sell if there is a major problem!