Market Overview

Considering The Possibilities Of A Fiat Chrysler Break Up

Considering The Possibilities Of A Fiat Chrysler Break Up

Fiat Chrysler Automobiles NV (NYSE: FCAU) was trading higher Wednesday on news suggesting a potential spinoff of its Maserati line and other parts.

Jefferies analysts Philippe Houchois and Ashik Kurian had been excited even ahead of reports, when the market passed mere speculation of interest by Chinese automakers.

In fact, they raised their price target from €13 ($14) to €16 ($19) under a new model weighing more than just “organic deleveraging.”

Likelihood Of A Deal

Given that local market conditions incentivize merger pursuits among Chinese manufacturers, Houchois and Kurian perceive “the will and the logic are there” for an FCA deal.

“Political objections are a given should a deal proceed, but these can be managed in a transaction without overlap, similar investment needs (electrification), and no national security implications,” they wrote in a Wednesday note.

The Sum Of Parts

While a full buyout is on the table, Jefferies considers a sale of individual segments less likely. By its estimates, the “stub” business of FCA is worth a mere €3.25 billion against Jeep’s €17 billion and Magneti’s €3 billion, which renders a sale of the whole more favorable.

Analysts noted that Jeep is still pursuing its full global potential, and Maserati and Alfa-Romeo’s investments in electrification are appealing to smaller OEMs. However, the former has yet to penetrate some of the highest profit segments, and a buyout of the latter appears “a long shot given recent relaunch.”

Considering deal chatter, Jefferies sees only potential upside to the stock, which was trading at $14.26 at time of publication.

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Latest Ratings for FCAU

Jun 2020RedburnUpgradesNeutralBuy
Feb 2020CFRAReiteratesBuy
Dec 2019Evercore ISI GroupUpgradesIn-LineOutperform

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