The Italian luxury carmaker Ferrari will list on the New York Stock Exchange with the most perfect ticker symbol ever: RACE.
Ferrari owner Fiat Chrysler is offering more than 17 million shares of Ferrari stock at $48 – $52 per share to sell off 10% of its stake in the performance carmaker. The valuation of the 17 million shares is about $1 billion. If that’s about 10 percent of the company, Ferrari will be valued at about $10 billion.
The stock sale is set to be oversubscribed. Initial requests for Ferrari shares could possibly exceed the amount available by more than ten times the initial offering. Clearly, investors are unconcerned by the Volkswagen diesel-emissions testing scandal that has hurt automaker stocks and are convinced that Ferrari is a great buy. Not to mention, private investors can finally earn their first Ferrari (share) for about $50.
Ferrari aims to set itself apart as more than an automaker by categorizing itself as a luxury brand. According to a report by Bloomberg: “Fiat Chrysler Chief Executive Officer Sergio Marchionne, who is also Ferrari’s chairman, has insisted for months that the brand should be valued as a luxury-goods maker, such as clothiers Prada SpA or Hermes International SCA, and not as an auto manufacturer. Those companies trade at over 20 times operating profit, more than twice the average valuation of carmakers.”
A Ferrari IPO has been rumored for a long time. Last year, longtime Ferrari Chairman Luca di Montezemolo stepped down, replaced by Fiat Chrysler Group CEO Sergio Marchionne, leading to murmurs that the IPO was imminent.
Rumors had it that Mr. di Montezemolo and Mr. Marchionne butted heads over differing visions for Ferrari’s future. Montezemolo wanted to preserve Ferrari’s exclusivity and hold production to a limited 7,000 cars per year. Marchionne wanted to grow the brand by producing more Ferraris to meet the insatiable global demand for high-end luxury products. He believed that an IPO of Ferrari offered two advantages: grow the Ferrari brand globally and finance the expansion of other Fiat Chrysler brands.
The public offering and eventual spinoff of Ferrari into its own company are part of Mr. Marchionne’s plan to grow Fiat Chrysler’s brands through funding. The money will cut Fiat Chrysler’s debt and finance a $55 billion investment program that focuses on expanding the Jeep, Alfa Romeo and Maserati brands across the globe.
After Ferrari’s IPO which is set to sell ten percent of Fiat Chrysler shares, Chairman Piero Ferrari, the son of the founder Enzo Ferrari, will keep a ten percent stake in Ferrari and a cash payment of a little more than $300 million. Fiat Chrysler will distribute the remaining 80 percent to shareholders early next year.
IPO offerings as of late have enjoyed a less than stellar response. So why did Ferrari choose the 4th quarter of 2015 to go public?
- The market has improved and the Volkswagen scandal has leveled off.
- Ferrari is profitable. Last year, the exclusive car maker shipped over 7,000 cars with revenues of more than $3 billion.
- They wanted to get the stock symbol RACE before anyone else does, who wouldn’t?