Fiat Chrysler Exploring USD 3.3 Billion Sale of Auto Parts Unit Magneti Marelli: Sources

A recent offer, by a consortium including a U.S. buyout fund, valuing the business at less than 2.5 billion euros was rebuffed in June.

Published: 17th July 2015 11:25 PM  |   Last Updated: 17th July 2015 11:39 PM   |  A+A-

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LONDON/MILAN: Fiat Chrysler Automobiles (FCA) is considering whether to sell its auto parts maker Magneti Marelli after receiving interest from potential buyers, according to sources familiar with the matter.

At least two U.S. private equity funds are looking to team up with industry players and submit joint bids for Magneti Marelli, which supplies all major carmakers in Europe, the Americas and Asia, three sources told Reuters.   

A recent offer, by a consortium including a U.S. buyout fund, valuing the business at less than 2.5 billion euros was rebuffed in June as FCA would not agree to sell for less than 3 billion euros ($3.3 billion), one of the sources said.

FCA declined to comment, while a Magneti Marelli spokesman had no comment.  

Debt-laden FCA could sell the wholly owned unit either in parts or in its entirety, the sources said, adding that no final decision on a disposal had been taken.

Magneti Marelli has often been touted as a takeover target. While FCA has always denied any interest in selling, the sources said the Italian-American carmaker had recently told interested parties it may reconsider its plans.   

The world's seventh-largest carmaker currently has its hands full with a planned initial public offering of luxury sports car maker Ferrari, skedded for after mid-October, and any decision on Magneti Marelli would be taken after that, the sources said.

Yet U.S. buyout funds have been working on the dossier for months, the sources said.

"Letters are piling up on Fiat's table," one of the sources said, pointing to a handful of unsolicited approaches. "We expect Chief Executive (Sergio) Marchionne to react to these approaches sooner rather than later."

A sale of the unit, which employs more than 38,000 and is present in 19 countries, could help FCA pay off some debt and fund an ambitious 48 billion euro ($52 billion) investment plan.

The plan could gain traction as Marchionne's plea to merge with rival carmaker General Motors is so far falling on deaf ears.

Based on the outskirts of Milan, Magneti Marelli had revenues of 6.5 billion euros last year and an operating profit, including unusual items, of 204 million euros. It makes components for lighting, engines, electronics, suspension and exhausts, among others.

BREAK-UP OPTIONS

The bidders aim to gain full control of Magneti Marelli and later split it up based on their own expertise, the sources said.

"Everyone will take a fair share of it," one of the sources said.

A number of large buyout funds, mainly U.S. based, are particularly interested in Magneti Marelli's lighting unit, which could be carved out and turned into a standalone firm, the source said.

This unit is worth around 2 billion euros and could appeal to global players such as Valeo, Hella, Koido and Stanley, a sector banker said.

Asian players could also make a move for the company, another source said, pointing to China's Wanxiang Group as a possible bidder.

Auto parts makers have shown growing appetite for mergers and acquisitions (M&A) deals in a bid to boost their global presence.

Earlier this year Germany's ZF Friedrichshafen completed its $13.5 billion acquisition of U.S. rival TRW Automotive Holdings.

Italian tyre maker Pirelli sold to ChemChina in March as part of a multi-layered 7.3 billion-euro ($8 billion) deal.

Marchionne is in no rush to sell Magneti Marelli and will be picky when choosing a buyer to ensure stable future supply of components to FCA plants, which churn out anything from tiny Fiat 500s, Jeep sport utility vehicles to luxury Maseratis.

Another source said that FCA may also review strategic options for two smaller auto components units, Comau and Teksid, with revenues of 1.55 billion euros and 639 million euros, respectively.

In 2012 Marchionne said Fiat could put Magneti Marelli on the block as an option to raise additional cash to lift its stake in Chrysler.

Fiat completed its buyout of the U.S. unit last year.

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