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Ferrari's IPO paid Chrysler's debt
Chrysler's Debt Problem
Buying Chrysler pushed Fiat Chrysler's combined debt above $11 billion, and CEO Sergio Marchionne promised Wall Street to bring it down to $1 billion or less by 2018. Ferrari was the easy source of cash. Luca di Montezemolo, who ran Ferrari, wanted no part of it. A public company must deliver steady growth through more cars, more models, more clients, and higher prices on a Wall Street calendar, and one of Luca's first acts at Ferrari had been to cut production in half.
Firing Luca
In September 2014, Marchionne fired Luca as Ferrari's chairman, with the pretext that the Formula 1 team had performed poorly in recent years. Bernie Ecclestone, who had often clashed with Luca, told the press that Luca leaving was for him the same as Enzo dying.
The Listing
In 2015, Fiat floated 10 percent of its 90 percent stake on the New York Stock Exchange at a market capitalization of $9.8 billion, raising just under a billion dollars. As part of the spin-off, $3.2 billion of Fiat Chrysler debt effectively moved to Ferrari. That is almost $4 billion of debt reduction in one transaction.
Marchionne died suddenly in 2018, the year he had promised to pay down the debt. Ferrari's market capitalization later reached about $90 billion.
How does a spin-off move debt onto a company?
A parent company can have its subsidiary borrow money from banks and pay the proceeds up to the parent. The debt then sits on the subsidiary's balance sheet instead of the parent's. The parent's own debt falls by the same amount, even though the combined borrowing is unchanged. Ferrari's listing used this structure, with part of Fiat Chrysler's borrowing moving to the carmaker.
How did Ferrari's shares first trade?
Ferrari priced its offering at $52 per share, the top of its marketed range, and raised about $893 million. The shares began trading in New York on October 21, 2015, under the ticker RACE. Fiat Chrysler later distributed most of its remaining stake to its own shareholders in January 2016, and Ferrari shares also began trading in Milan.
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