Based on the case study: ?Fiat: The Value of a Spinoff Answer all three questions. Q1. (Weight 40%) Investigate Fiat Groups diff
1. Wordcount: at least 2,000 words – references are excluded from the wordcount;
2. Please submit ONLY word documents. PDFs or any kind of photo documents will not be marked;
3. Please do not plagiarise: any similarity index above 20% will be referred to the Ethics Committee;
4. Prose is highly recommended as opposed to any metrical structure of text;
5. Please title your answers, for example: Answer to Question 1 or Answer to Question 2;
6. If you need extra time, please apply for Extenuating Circumstances;
7. Deadline: saturday 2th of April by 23:59 GMT/UTC
Based on the case study: ‘Fiat: The Value of a Spinoff’
Answer all three questions.
Q1. (Weight 40%)
Investigate Fiat Group’s different options for splitting up its constituent companies in order to enable the market to assess the performance of its two main businesses (Capital Goods and Automobiles) on an individual basis.
Q2. (Weight 30%)
Critically reflect on the pros and cons of the diversification strategies.
Q3. (Weight 30%)
Comment on all possible reasons explaining the diversification discount.
Copyright © 2011 SDA Bocconi, Milan, Italy
Fiat / Fiat Industrial The Value of a Spinoff
Stefano Gatti Stefano Lenzotti
112-009-1
Distributed by The Case Centre North America Rest of the world www.thecasecentre.org t +1 781 239 5884 t +44 (0)1234 750903 All rights reserved f +1 781 239 5885 f +44 (0)1234 751125
e [email protected] e [email protected] case centre
U sa
ge p
er m
itt ed
o nl
y w
ith in
th es
e pa
ra m
et er
s ot
he rw
is e
co nt
ac t i
th ec
as ec
en tr
e. or
g T
au gh
t b y
G eo
rg io
s K
io ur
kt so
gl ou
, f ro
m 2
1- Ja
n- 20
19 to
2 1-
Ju l-2
01 9.
O rd
er r
ef F
34 35
44 .
P ur
ch as
ed fo
r us
e on
th e
G E
E N
-1 01
6, S
tr at
eg y
& M
an ag
em en
t, at
F ac
ul ty
o f E
ng in
ee rin
g &
S ci
en ce
, U ni
ve rs
ity o
f G re
en w
ic h.
E du
ca tio
na l m
at er
ia l s
up pl
ie d
by T
he C
as e
C en
tr e
C op
yr ig
ht e
nc od
ed A
76 H
M -J
U J9
K -P
JM N
9I O
rd er
r ef
er en
ce F
34 35
44
SDA Bocconi School of Management Fiat / Fiat Industrial 2011_002
Copyright © 2011 SDA Bocconi, Milan, Italy
Stefano Gatti, Stefano Lenzotti
Fiat / Fiat Industrial – The Value of a Spinoff1
“There is no longer any reason to keep together sectors that operate with such diverse financial and industrial logic. The concept is not only outdated, it no longer serves any useful purpose.” Sergio Marchionne, 16 September 2010
1. Background of the Deal
“Fiat Investor Day”, held in Torino, Italy on 21 April 2010, set the stage for CEO Sergio Marchionne and members of the Group Executive Council to present the first quarter 2010 results to the financial community, along with projections for the future of the Fiat Group and its constituent companies.
This much anticipated event coincided with the official resignation of President Luca Cordero di Montezemolo, and the subsequent appointment by the Board of Directors of John Elkann, grandson of Giovanni Agnelli and President of EXOR, parent company of the Fiat Group
During the presentation of the 2010-2014 Business Plan, a partial and proportional demerger was announced, slated to take place in the months to come. This move would lead to the listing of a new holding, completely independent of the Fiat parent company: Fiat Industrial.
All companies operating in the “Capital Goods” business would be transferred to the new group. Pertinent activities would encompass production of industrial vehicles, agricultural machinery and relative mechanical parts. Only companies with “Automobile” as their core business were to remain under Fiat.
The need for a spinoff in the Fiat Group had been apparent for some time, and for two main reasons. First, the market found it difficult to appreciate the full value of each individual company within the framework of an industrial conglomerate. Second, the general tendency was to show a preference for companies with a strong focus on a single business, rather than widely diversified organizations.
So on 20 April, when word got out that the following day a spinoff would be annouced, market reaction to the news was positive, driving up Fiat S.p.A shares by 9.26% (see Figures 1 and 2). This favorable response was reconfirmed the day of the announcement, when Fiat closed at +1.73%. This despite an initial dip due to quarterly results that were positive, but still penalized by the recent crisis.
In the months to follow, rumors spread of a 9-billion euro offer for Fiat Industrial by Daimler, a company that had had previous dealings with Fiat when the Chrysler partnership was set up. The reports of a deal, although well-received by the market, were immediately denied. Fiat did however express its willingness to discuss the possibility.
1 This case was written by Professor Stefano Gatti (SDA Bocconi School of Management) and Stefano Lenzotti to provide a framework for classroom discussion, and not as a tool for illustrating more or less accurate assessment methodologies. All evaluations in this document are intended exclusively to give students a clearer understanding of corporate restructuring processes and the value creation that these processes can generate. The authors are not responsible for inappropriate use of the data cited herein. The authors wish to thank Massimo Della Ragione and Giuseppe Pipitone (Goldman Sachs) for their assistance in accessing certain data presented in this case study.
112-009-1
2
U sa
ge p
er m
itt ed
o nl
y w
ith in
th es
e pa
ra m
et er
s ot
he rw
is e
co nt
ac t i
th ec
as ec
en tr
e. or
g T
au gh
t b y
G eo
rg io
s K
io ur
kt so
gl ou
, f ro
m 2
1- Ja
n- 20
19 to
2 1-
Ju l-2
01 9.
O rd
er r
ef F
34 35
44 .
P ur
ch as
ed fo
r us
e on
th e
G E
E N
-1 01
6, S
tr at
eg y
& M
an ag
em en
t, at
F ac
ul ty
o f E
ng in
ee rin
g &
S ci
en ce
, U ni
ve rs
ity o
f G re
en w
ic h.
E du
ca tio
na l m
at er
ia l s
up pl
ie d
by T
he C
as e
C en
tr e
C op
yr ig
ht e
nc od
ed A
76 H
M -J
U J9
K -P
JM N
9I O
rd er
r ef
er en
ce F
34 35
44
SDA Bocconi School of Management Fiat / Fiat Industrial 2011_002
Copyright © 2011 SDA Bocconi, Milan, Italy
On 21 July 2010 the Fiat Group’s Board of Directors approved the partial and proportional demerger, in accordance with Article 2506 of the Italian Civil Code. On 16 September 2010, during the Extraordinary Shareholders’ Assembly convened to vote on the deal, the spinoff was definitively approved by shareholders. This set in motion the procedures that would lead to listing Fiat Industrial on the Borsa Italiana on 3 January 2011. On that occasion, Sergio Marchionne himself presented the details of the operation, saying: “Separation of the Group into two distinct entities will finally enable the strategic issue that has been a thorn in Fiat’s side for a number of years to be resolved. It will allow our Group to launch a new chapter in its history.”2 Figure 1: Trend in share prices of Fiat S.p.A. (Data source: Datastream)
8.80
9.00
9.20
9.40
9.60
9.80
10.00
10.20
10.40
10.60
10.80
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
P ri
c e ( E
U R
)
V o
lu m
e ( '0
0 0 )
2 Source: “Il Sole 24 Ore”, 16 September 2010.
112-009-1
3
U sa
ge p
er m
itt ed
o nl
y w
ith in
th es
e pa
ra m
et er
s ot
he rw
is e
co nt
ac t i
th ec
as ec
en tr
e. or
g T
au gh
t b y
G eo
rg io
s K
io ur
kt so
gl ou
, f ro
m 2
1- Ja
n- 20
19 to
2 1-
Ju l-2
01 9.
O rd
er r
ef F
34 35
44 .
P ur
ch as
ed fo
r us
e on
th e
G E
E N
-1 01
6, S
tr at
eg y
& M
an ag
em en
t, at
F ac
ul ty
o f E
ng in
ee rin
g &
S ci
en ce
, U ni
ve rs
ity o
f G re
en w
ic h.
E du
ca tio
na l m
at er
ia l s
up pl
ie d
by T
he C
as e
C en
tr e
C op
yr ig
ht e
nc od
ed A
76 H
M -J
U J9
K -P
JM N
9I O
rd er
r ef
er en
ce F
34 35
44
SDA Bocconi School of Management Fiat / Fiat Industrial 2011_002
Copyright © 2011 SDA Bocconi, Milan, Italy
Figure 2: Trend in daily returns on Fiat S.p.A. shares compared to returns on the FTSE Italia All-Share index (Data source: Datastream)
-.08
-.04
.00
.04
.08
.12
2010M03 2010M04 2010M05 2010M06
R_ACTUAL_FIAT R_FTSE_ITALIA
21/04/2010
112-009-1
4
U sa
ge p
er m
itt ed
o nl
y w
ith in
th es
e pa
ra m
et er
s ot
he rw
is e
co nt
ac t i
th ec
as ec
en tr
e. or
g T
au gh
t b y
G eo
rg io
s K
io ur
kt so
gl ou
, f ro
m 2
1- Ja
n- 20
19 to
2 1-
Ju l-2
01 9.
O rd
er r
ef F
34 35
44 .
P ur
ch as
ed fo
r us
e on
th e
G E
E N
-1 01
6, S
tr at
eg y
& M
an ag
em en
t, at
F ac
ul ty
o f E
ng in
ee rin
g &
S ci
en ce
, U ni
ve rs
ity o
f G re
en w
ic h.
E du
ca tio
na l m
at er
ia l s
up pl
ie d
by T
he C
as e
C en
tr e
C op
yr ig
ht e
nc od
ed A
76 H
M -J
U J9
K -P
JM N
9I O
rd er
r ef
er en
ce F
34 35
44
SDA Bocconi School of Management Fiat / Fiat Industrial 2011_002
Copyright © 2011 SDA Bocconi, Milan, Italy
1.1 Structure of the Fiat Group before the Spinoff
Prior to the spin off, the Fiat Group was the largest private industrial concern in Italy. Fiat designed, built and sold cars, trucks, agricultural machinery, engines, spare parts and mechanical components. The Group focused on technological innovation and environmental compatibility as competitive success factors.
For some time, diverging prospects and needs had been emerging in the Group’s traditional sectors.
The Automobile business in particular operated in an extremely competitive market, where key competitive factors included: price, quality, product range and personalization options, safety, fuel efficiency and functionality. All this calls for huge investments in research and development, due to consumer expectations of constant innovations in terms of new products, emissions control, and driver/passenger safety.
For the Capital Goods business, instead, key competitive factors centered on a solid brand, an extensive distribution network, financial services to support purchases, and a wide product range. This business was highly impacted by general economic conditions, demand for food and climatic conditions; here competitors spent less on research and development because demand was less dependent on product models.
In light of the above, Fiat Group subsidiaries could be classified in the following macro product categories (without taking into consideration the spinoff):
Automobiles (Fiat Group Automobiles, Ferrari and Maserati): Fiat Group Automobiles manufactured and sold automobiles with the Fiat, Alfa Romeo, Lancia and Abarth brands, and light-duty commercial vehicles with the Fiat Professional brand. Greatest sales volumes were generated by the lower product segments (Mini, Multi Purpose Vehicle (MPV) and Compact). Ferrari and Maserati produced cars in the high segments (Luxury, Coupé, and Sports Cars).3
Agricultural and construction equipment (CNH): CNH manufactured agricultural machinery with the brands Case IH Agriculture, New Holland Agriculture, and Steyr, and construction equipment with the brands Case Construction, New Holland Construction, and Kobelco. With a distribution network covering Europe, North America, Latin America and Asia, CNH is a global leader in both agricultural and construction equipment.
Industrial Vehicles (Iveco): Iveco designed, produced, and sold a complete range of industrial vehicles with the Iveco brand, buses with the Irisbus brand, vehicles for fire-fighting and for special purposes with the Magirus and Astra brands. Iveco’s distribution network was primarily concentrated in Europe, Latin America and Australia.
Components and production systems (FPT Powertrain Technologies, Magneti Marelli, Teksid and Comau): These companies produced mechanical components and automated industrial systems primarily for the Group. FPT Powertrain Technologies operated specifically in three distinct business lines: Automotive Applications (engines and spare parts for cars; light-, medium- and heavy-duty commercial vehicles; buses); Industrial Applications (engines and spare parts for industrial and agricultural machinery); and Marine Applications (marine engines for professional and pleasure crafts).
3 To identify the positioning of Fiat Group Automobiles, Ferrari and Maserati, we refer to traditional segmentation of the automobile market: Mini (Segment A); MPV (Segment B); Compact (Segment C); Mid-size (Segment D); Executive (Segment E); Luxury (Segment G); Coupé (Segment H); Sports Car (Segment I) and Van (Segment L).
112-009-1
5
U sa
ge p
er m
itt ed
o nl
y w
ith in
th es
e pa
ra m
et er
s ot
he rw
is e
co nt
ac t i
th ec
as ec
en tr
e. or
g T
au gh
t b y
G eo
rg io
s K
io ur
kt so
gl ou
, f ro
m 2
1- Ja
n- 20
19 to
2 1-
Ju l-2
01 9.
O rd
er r
ef F
34 35
44 .
P ur
ch as
ed fo
r us
e on
th e
G E
E N
-1 01
6, S
tr at
eg y
& M
an ag
em en
t, at
F ac
ul ty
o f E
ng in
ee rin
g &
S ci
en ce
, U ni
ve rs
ity o
f G re
en w
ic h.
E du
ca tio
na l m
at er
ia l s
up pl
ie d
by T
he C
as e
C en
tr e
C op
yr ig
ht e
nc od
ed A
76 H
M -J
U J9
K -P
JM N
9I O
rd er
r ef
er en
ce F
34 35
44
SDA Bocconi School of Management Fiat / Fiat Industrial 2011_002
Copyright © 2011 SDA Bocconi, Milan, Italy
Fiat Group held a controlling interest (if not all equity) in the companies listed above, as illustrated in Figure 3.
Figure 3: Fiat Group organizational chart before the spinoff (Source: Fiat Group Consolidated Financial Statement 2009)
This structure was the final outcome of a series of acquisitions constituting a major diversification strategy initialized in the late ‘60s with the aim of shoring up the Group in all of its business sectors (see Table 1).
Table 1: Timeline of major deals resulting in the Fiat Group structure before the spinoff (Source: Consolidated Financial Statement Fiat Group 2009)
Although Group Headquarters has always been located in Torino, from the outset Fiat’s growth took an international path resulting in a strong global presence. In fact, industrial activities and financial services in the automotive sector were handled by companies in roughly 50 countries, and consolidated through commercial relationships with customers in around 190 countries.
Fiat’s growing ambition was to shore up international business, in particular outside of Europe. This ultimately led the Fiat Group to hold a market share of 31.8% in Italy, 8.6% in Europe, and a leadership position on the Brazilian market, immediately prior to activating demerger procedures.
Figure 4 shows the breakdown of revenues both by business area and geographic destination, highlighting which markets and business activities account for the largest share of turnover.
Fiat Group Automobiles
100%
MASERATI
100%
FERRARI
85%
IVECO
100%
FPT POWERTRAIN TECHNOLOGIES
100%
CNH
89.3%
FIAT
GROUP
COMAU 100%
MAGNETI MARELLI
100%
TEKSID
84.8%
Year Milestone 1899 Fiat founded 1967 Magneti Marelli acquired
1975 Iveco founded, Ferrari joined Group
1978 Comau and Teksid established, Lancia absorbed in Group
1984 Alfa Romeo acquired
1993 Maserati joined Group
1999 New Holland and Case Corporation merger
2005 FPT Powertrain Technologies founded
2009 Strategic Partnership with Chrysler
2011 Fiat Spinoff
Automobiles
Components and production systems
Agricultural &
Construction Equipment
Industrial Vehicles
112-009-1
6
U sa
ge p
er m
itt ed
o nl
y w
ith in
th es
e pa
ra m
et er
s ot
he rw
is e
co nt
ac t i
th ec
as ec
en tr
e. or
g T
au gh
t b y
G eo
rg io
s K
io ur
kt so
gl ou
, f ro
m 2
1- Ja
n- 20
19 to
2 1-
Ju l-2
01 9.
O rd
er r
ef F
34 35
44 .
P ur
ch as
ed fo
r us
e on
th e
G E
E N
-1 01
6, S
tr at
eg y
& M
an ag
em en
t, at
F ac
ul ty
o f E
ng in
ee rin
g &
S ci
en ce
, U ni
ve rs
ity o
f G re
en w
ic h.
E du
ca tio
na l m
at er
ia l s
up pl
ie d
by T
he C
as e
C en
tr e
C op
yr ig
ht e
nc od
ed A
76 H
M -J
U J9
K -P
JM N
9I O
rd er
r ef
er en
ce F
34 35
44
SDA Bocconi School of Management Fiat / Fiat Industrial 2011_002
Copyright © 2011 SDA Bocconi, Milan, Italy
Figure 4: Breakdown of revenues by business area and geographical destination (Source: Fiat Group Consolidated Financial Statement, 2009)
56%
20%
14%
9%
1% Automobiles
Agricultural & Construction Equipment
Industrial Vehicles
Components & Production Systems
Other Activities
25%
35%
10%
20%
10%
Italy
Rest of Europe
North America
Mercosur
Other areas
112-009-1
7
U sa
ge p
er m
itt ed
o nl
y w
ith in
th es
e pa
ra m
et er
s ot
he rw
is e
co nt
ac t i
th ec
as ec
en tr
e. or
g T
au gh
t b y
G eo
rg io
s K
io ur
kt so
gl ou
, f ro
m 2
1- Ja
n- 20
19 to
2 1-
Ju l-2
01 9.
O rd
er r
ef F
34 35
44 .
P ur
ch as
ed fo
r us
e on
th e
G E
E N
-1 01
6, S
tr at
eg y
& M
an ag
em en
t, at
F ac
ul ty
o f E
ng in
ee rin
g &
S ci
en ce
, U ni
ve rs
ity o
f G re
en w
ic h.
E du
ca tio
na l m
at er
ia l s
up pl
ie d
by T
he C
as e
C en
tr e
C op
yr ig
ht e
nc od
ed A
76 H
M -J
U J9
K -P
JM N
9I O
rd er
r ef
er en
ce F
34 35
44
SDA Bocconi School of Management Fiat / Fiat Industrial 2011_002
Copyright © 2011 SDA Bocconi, Milan, Italy
2. Details of the Spinoff
The Fiat spinoff represented the last step in the process of decentralizing management. This process had actually begun in the ‘70s, initially transforming former divisions into separate subsidiaries of the same Holding, and ultimately into two distinct groups.
Specifically, this separation involved on one hand Iveco and CNH activities, plus the Industrial and Marine (I&M) branch of FPT Powertrain Technologies, and on the other automobile-related businesses, including Fiat Group Automobiles, Ferrari, Maserati, Magneti Marelli, Teksid, Comau and the Passenger & Commercial Vehicles (P&CV) line by FPT Powertrain Technologies (See Figure 5).
Figure 5: Organizational Chart of Fiat S.p.A. and Fiat Industrial S.p.A. (Source: Demerger Information Document)
Summing up, the spinoff would result in the creation of a new group, Fiat Industrial S.p.A. This new organization was listed on the Borsa Italiana on 3 January 2011 with ordinary, preferred and non-voting shares, according to the pre-existing share structure of the Fiat Group.
To make it possible for Fiat Industrial S.p.A. to exist independently on the market, the following steps were necessary:
Internal reorganization of Fiat Group to transfer the activities and shareholdings relating to the Capital Goods business;
Provide Fiat Industrial Holding with initial equity to compensate for transferred activities;
Divide Fiat Group’s debt between the two new groups, Fiat S.p.A. and Fiat Industrial S.p.A.
CNH Iveco
I&M P&CV
FPT Automobiles Components Other Activities
Fiat S.p.A.
Fiat Shareholders
CNH Iveco FPT I&M
Fiat Industrial S.p.A.
FPT P&CV Automobiles Components Other Activities
Fiat S.p.A.
Fiat Shareholders
112-009-1
8
U sa
ge p
er m
itt ed
o nl
y w
ith in
th es
e pa
ra m
et er
s ot
he rw
is e
co nt
ac t i
th ec
as ec
en tr
e. or
g T
au gh
t b y
G eo
rg io
s K
io ur
kt so
gl ou
, f ro
m 2
1- Ja
n- 20
19 to
2 1-
Ju l-2
01 9.
O rd
er r
ef F
34 35
44 .
P ur
ch as
ed fo
r us
e on
th e
G E
E N
-1 01
6, S
tr at
eg y
& M
an ag
em en
t, at
F ac
ul ty
o f E
ng in
ee rin
g &
S ci
en ce
, U ni
ve rs
ity o
f G re
en w
ic h.
E du
ca tio
na l m
at er
ia l s
up pl
ie d
by T
he C
as e
C en
tr e
C op
yr ig
ht e
nc od
ed A
76 H
M -J
U J9
K -P
JM N
9I O
rd er
r ef
er en
ce F
34 35
44
SDA Bocconi School of Management Fiat / Fiat Industrial 2011_002
Copyright © 2011 SDA Bocconi, Milan, Italy
2.1 Internal Reorganization of the Fiat Group
Prior to the Fiat Group spinoff, Iveco’s industrial activities were radically reorganized. The aim was to set up a group structure separating Italian businesses linked to Industrial Vehicles from Industrial and Marine. Foreign shareholdings pertinent to these sectors were to be concentrated in a single subsidiary of the Group.
This reorganization was executed by means of two transactions conducted in tandem; the effectiveness of these initiatives was clearly contingent on Fiat Industrial S.p.A. being admitted for listing on the MTA (Mercato Telematico Azionario) by the Borsa Italiana. The first called for Iveco to transfer groups of activities and shareholdings representing Italian operations to Nuove Iniziative Finanziarie Cinque and Nuova Immobiliare Nove, two companies wholly owned by Fiat S.p.A. and inactive prior to the spinoff.
Specifically, Nuove Iniziative Finanziarie Cinque acquired the group of activities associated with Industrial Vehicles, while Nuova Immobiliare Nove obtained from Iveco the group of activities relating to Italian operations and shareholdings in Industrial & Marine. Subsequently, Nuova Immobiliare Nove acquired interest in SAIC Fiat Powertrain Hongyan Co.Ltd. Chongqing held by FPT Powertrain Technologies (which remained within the consolidated Fiat S.p.A.)
To more clearly illustrate the above transactions, Tables 2 and 3 provide a list of shareholdings transferred from Iveco to Nuove Iniziative Finanziarie Cinque and Nuova Immobiliare Nove.
When these deals came into effect, Nuove Iniziative Finanziarie Cinque took over the corporate name Iveco, while the former Iveco (which at this point counted only a few non-core businesses, with relation to the group of transferred activities) was renamed Fiat Gestione Partecipazioni S.p.A.; lastly, the name Nuova Immobiliare Nove was changed to FPT Industrial S.p.A.
At the same time, the second transaction resulted in the transfer of foreign shareholdings in the Industrial Vehicles business and the I&M branch of Powertrain activities from Iveco to Fiat Netherlands Holding N.V. This beneficiary company already held approximately 90% of the share capital of CNH Global, and shareholdings in other foreign entities relating to the Industrial Vehicles business.
To complete the structure of the Fiat Industrial Group, Fiat Industrial Finance was incorporated on 7 June 2010 in order to establish a centralized treasury capable of operating in international financial markets.
Table 4 lists the value of shareholdings transferred to Fiat Industrial S.p.A. as of 30 June 2010, as stated in the half-year financial statement presented by Fiat S.p.A.
112-009-1
9
U sa
ge p
er m
itt ed
o nl
y w
ith in
th es
e pa
ra m
et er
s ot
he rw
is e
co nt
ac t i
th ec
as ec
en tr
e. or
g T
au gh
t b y
G eo
rg io
s K
io ur
<
Collepals.com Plagiarism Free Papers
Are you looking for custom essay writing service or even dissertation writing services? Just request for our write my paper service, and we'll match you with the best essay writer in your subject! With an exceptional team of professional academic experts in a wide range of subjects, we can guarantee you an unrivaled quality of custom-written papers.
Get ZERO PLAGIARISM, HUMAN WRITTEN ESSAYS
Why Hire Collepals.com writers to do your paper?
Quality- We are experienced and have access to ample research materials.
We write plagiarism Free Content
Confidential- We never share or sell your personal information to third parties.
Support-Chat with us today! We are always waiting to answer all your questions.
