Fiat Chrysler Automobiles NV's (FCAU, Financial) shares rose after announcing a deal with KKR & Co.’s (KKR, Financial) Calsonic Kansei on Monday.
The company agreed to sell its high-tech car parts unit, Magneti Marelli, to the Japanese company for 6.2 billion euros ($7.1 billion) in an all-cash transaction, marking the first major deal under new CEO Mike Manley.
Magneti Marelli specializes in lighting, powertrain and high-tech electronics. The combined entity will be the world’s seventh-largest independent automotive components supplier with over $17 billion in annual revenues.Â
Following the announcement, Fiat’s stock rallied more than 7%.Â
“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 a statement.
Fiat's former CEO, Sergio Marchionne, who Manley replaced following his unexpected death in July, had previously said the company was open to other ideas than the previously planned share listing for the auto parts division. Given the global trade scenario and the ongoing political tension in Italy, the decision to sell appears to have been embraced by investors.
According to reports, the new entity will be named Magneti Marelli CK Holdings and will operate approximately 200 facilities and research and development centers. The combined company will be lead by Beda Bolzenius, the current CEO of Calsonic Kansei. Ermanno Ferrari, the current CEO of Magneti Marelli, will join the combined entity’s board.
While automakers are struggling as a result of trade-related headwinds, Fiat sold 199,819 vehicles in September, up 14.7% from the same period last year. Its sales surpassed those of Ford (F, Financial) for the first time in 11 years, primarily owing to higher volumes in the Jeep and Ram segments. In addition, the recent sale might allow the company some room to start paying dividends, something it hasn’t done since it was formed in 2014.
From a valuation standpoint, Fiat currently floats a price-earnings ratio of 6.26 as compared to the industry median of 15.55. Moreover, it has a forward price-earnings ratio of 4.17 as compared with the industry median of 10.89. The company currently has a three-year earnings before interest, taxes, depreciatio and amortization growth rate of 13.3% as compared with the industry median of 6.7%.
All told, Fiat appears to be an attractive investment proposition currently. Given its 12.7% decline so far this year and the possibility of a dividend, it is a good time to buy the stock at a low valuation.
Disclosure: I do not own any of the stocks mentioned.
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