Fiat should mull sell­ing Europe busi­ness, in­vestor urges board

Gulf Times Business - - BUSINESS -

As­mall Fiat Chrysler Au­to­mo­biles NV in­vestor is urg­ing the board to con­sider sell­ing its Euro­pean busi­ness and even­tu­ally spin off the Maserati and Alfa Romeo divi­sions to fo­cus on its prof­itable US brands.

ADW Cap­i­tal Man­age­ment LLC, a long-time share­holder, is press­ing th­ese and other pro­pos­als to lift the Ital­ian-Amer­i­can car­maker’s shares and “elim­i­nate its turn­around valu­a­tion,” it said in a let­ter sent to the board on Thurs­day.

The fund isn’t among Fiat’s top 100 share­hold­ers. Fiat’s re­liance on the US mar­ket was stark dur­ing the third quar­ter, when hot-sell­ing mod­els like the Ram 1500 and Jeep Wran­gler led to North Amer­i­can op­er­a­tions gen­er­at­ing 97% of prof­its.

While re­turn on sales in the re­gion over­took Ford Mo­tor Co and matched Gen­eral Mo­tors Co’s mar­gin, Fiat’s valu­a­tion con­tin­ues to trail both its ri­vals.

“While Fiat has pre­mium brands which are sec­u­larly grow­ing, the strong­est bal­ance sheet and high­est growth pro­file of all US car­mak­ers, the com­pany trades at a sig­nif­i­cant dis­count to its clos­est peers, GM and Ford,” ADW Founder Adam Wy­den, 34, wrote in the let­ter ob­tained by Bloomberg News.

Shares re­versed ear­lier losses and gained as much as 1.3% in Mi­lan trad­ing, giv­ing the com­pany a mar­ket value of €22.8bn ($26.1bn).

Wy­den would change the com­pany’s name to Jeep­RAM to re­flect its strong­est brands and have it adopt US GAAP ac­count­ing prin­ci­ples to en­able more US in­dex funds to in­vest in the shares.

Here’s a run­down of the fund’s more ag­gres­sive pro­pos­als:

Com­bine Europe’s Fiat brand with an­other car­maker fo­cused on the re­gion, such as France’s PSA Group. This would fo­cus man­age­ment on the higher-mar­gin Amer­i­can busi­ness- es that are primed for in­ter­na­tional growth

Spin off or sell shares in a com­bined Maserati and Alfa Romeo busi­ness

Merge with a North Amer­i­can peer, such as GM, for cost sav­ings

Fiat had no im­me­di­ate comment on the let­ter.

The com­pany has said it plans to re­main in­de­pen­dent through its fiveyear plan to 2022.

ADW man­ages $150mn and Fiat is its big­gest in­vest­ment. The fund has pre­vi­ously sought to take an ac­tive role in com­pa­nies where the fund holds stakes.

In Oc­to­ber, it urged US soft­ware provider PAR Tech­nol­ogy Corp to pur­sue a sale. Wy­den wrote a sim­i­lar let­ter ad­vo­cat­ing for Di­a­mond Re­sorts In­ter­na­tional to sell it­self, months be­fore Apollo Global Man­age­ment LLC ac­quired the com­pany in 2016.

Fiat Chrysler is con­trolled by the Agnelli fam­ily’s Exor NV, which holds more than 50% of vot­ing rights. That level of con­trol has left lit­tle room for in­vestor re­quests to gain trac­tion. ADW, founded in 2011, has been a share­holder since 2014.

Fiat Chrysler shares have more than tripled since list­ing in 2014. Ser­gio Mar­chionne, the deal­mak­ing, glo­be­trot­ting for­mer chief ex­ec­u­tive of­fi­cer who died ear­lier this year, helped re­vive Chrysler from bank­ruptcy by re­struc­tur­ing the busi­ness and sep­a­rat­ing as­sets for­merly owned by Fiat.

Profit has more than dou­bled profit since 2013 from higher Jeep sales and the elim­i­na­tion of net non-fi­nan­cial debt. Su­per­car maker Fer­rari NV was spun off in 2015.

Since July, when Mike Man­ley re­placed Mar­chionne, Fiat Chrysler’s US shares have de­clined 13%. The com­pany also has low­ered its profit out­look for the year on weaker sales in China.

“We too miss our coach but our team was hard con­di­tioned for ex­cel­lence over the last 14 years,” Wy­den wrote in the let­ter. “It is our turn now to make the boss proud and play of­fence.”

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