MILAN (Bloomberg) -- Fiat Chrysler Automobiles plans to spin off the Ferrari super-car brand, underpinning efforts to raise about $4.7 billion as the Italian-American carmaker counters rising debt. The stock soared 19 percent.
FCA will list 10 percent of Ferrari in the U.S. and possibly Europe and plans to complete the deal next year, the company said today in a statement. The sale will raise about $1.15 billion, according to an estimate from Mediobanca.
The company, formed from the merger of Italy’s Fiat and U.S. automaker Chrysler, will distribute its remaining shares in the maker of cars like the $319,000 F12 Berlinetta to its own investors. With the move, CEO Sergio Marchionne has ensured demand for a planned $2.5 billion mandatory convertible bond as well as the sale of as many as 100 million shares, which would raise about $1.1 billion at current prices.
“Ferrari’s spinoff is the market-moving news investors were looking for,” Vincenzo Longo, a strategist with IG Markets in Milan, said by phone. “Fiat is putting its jewel on the market.”
FCA shares surged in both Milan and New York. The stock closed up 12 percent to $10.85 on the New York Stock Exchange.
Under the plan, FCA will distribute 80 percent of Ferrari stock to current FCA shareholders with another 10 percent being offered to the public.
Piero Ferrari, son of company founder Enzo, will retain his current 10 percent stake in the automaker.
FCA’s board met today for the first time at its new headquarters in London’s West End to discuss FCA’s financing needs as it embarks on 48 billion-euro ($61 billion) expansion plan that’s set to run through 2018. By expanding the Jeep and Alfa Romeo brands globally, the company aims to increase net income fivefold to about 5 billion euros.
While Marchionne has said the company didn’t need to raise money for the plan, high debt makes it vulnerable to volatility in key markets such as Brazil and Europe.
“FCA does not have the balance sheet to weather a potential cyclical downturn, of which the probability has clearly increased in recent months,” Stuart Pearson, a London-based analyst with Exane BNP Paribas, said in a note before results were released.
Marchionne merged Fiat and Chrysler into the world’s seventh-largest carmaker to better compete with auto-industry leaders such as General Motors Co., Volkswagen AG and Toyota Motor Corp. The manufacturer today stuck to its target for 2014 Ebit, excluding one-time items, of 3.6 billion euros to 4 billion euros.
The share sale is higher than expected. The company had already indicated that it had 89 million shares available for investors. That includes treasury shares and Fiat stock bought back during the merger process.