Fiat Chrysler agrees to sell Magneti Marelli to KKR's Calsonic Kansei

Editor's note: Magneti Marelli and Calsonic Kansei generated a combined $18.3 billion in combined revenues from automakers in 2017, according to the Automotive News list of the top 100 global suppliers. The combined business was misstated in an earlier version of this story.

MILAN -- Fiat Chrysler Automobiles agreed to sell its high-tech car-parts unit, Magneti Marelli, to KKR & Co.’s Calsonic Kansei in a 6.2 billion-euro ($7.1 billion) transaction.

The new company will be called Magneti Marelli CK Holdings, the companies said Monday in a statement. 

Magneti Marelli specializes in lighting, powertrain and high-tech electronics. 

FCA will enter into a multiyear supply agreement with its former unit that will maintain Marelli’s presence in Italy and maintain employment levels. Fiat will keep Marelli’s plastics division, which is mostly a captive business and generated about 700 million euros in revenue last year, people familiar with the matter told Bloomberg.

The agreement will allow the new entity to cut costs through synergies and expand its customer base.

Beda Bolzenius, CEO of the Japanese acquirer, will lead the combined entity, which will be based in Japan.

The sale is one of the first major milestones for new FCA CEO Mike Manley, who took over FCA days before the death of his predecessor Sergio Marchionne in July. It’s also the first M&A transaction overseen by Chairman John Elkann since his so-called deal "maestro" passed away.

“The transaction recognizes the full strategic value of Magneti Marelli and is another important step in our relentless focus on value creation,” Manley said in the statement.

FCA shares rose 3.7 percent to close at $16.09 in New York.

Deteriorating conditions

Marchionne, who had initially favored separating the business by distributing shares to investors, had said FCA was open to changing its mind for a “big check.”

FCA opted for a sale of Magneti Marelli instead of listing on the Milan stock exchange after market conditions deteriorated amid global trade tensions and political uncertainty in Italy, as well as profit warnings from automakers and suppliers.

Daimler issued its second profit warning in four months on Friday and automotive supplier Continentalcut its outlook in August. Volvo Cars in September delayed plans for a share sale, saying the timing is “not optimal,” and Aston Martin’s shares have slumped since its initial public offering.

FCA could now consider rewarding shareholders with the Marelli sale. The unit could provide Fiat with more than $2 billion in dividends, according to Joel Levington, a senior credit analyst at Bloomberg Intelligence.

Japanese companies have announced more than $200 billion of acquisitions this year, a 60 percent increase from the same period in 2017, according to data compiled by Bloomberg. The deal volume has already reached the highest annual tally in more than a decade, the data show.

FCA’s talks with KKR initially started months ago under Marchionne, people familiar with the matter said previously. As part of the negotiations, FCA rejected an offer as the two sides were divided on the price by about 1 billion euros, people familiar with the matter said in September.

Before pursuing talks with KKR, Fiat fielded interest from other potential buyers, including Apollo Global Management, Bain Capital and an unnamed Asian parts supplier, people familiar with the matter said in August.

Magneti Marelli ranks No. 28 on the Automotive News list of the top 100 global suppliers with worldwide sales to automakers of $9.23 billion in the 2017 fiscal year. Calsonic ranks No. 29 on that list, with estimated sales to automakers of $9.06 billion in 2017 fiscal year. 

Reuters contributed to this report.