What is going on at Ferrari? Based on a market-multiples approach and a discounted cash flow approach
What is going on at Ferrari? Based on a market-multiples approach and a discounted cash flow approach, at what price do you think the shares should be sold?
In 2015, Sergio Marchionne, chairman of Ferrari and CEO of its parent company, Fiat Chrysler Automobiles NV (FCA) decided to spin-off Ferrari from its parent company by a public offering of its shares. As a private corporation with a long and powerful history, this IPO came with a lot of attention from the public. His plan was to sell 10% stake in Ferrari in an IPO and to grant the money received to FCA.
EPS= 1.69
Auto Manufacturers P/E: 15.0
Valuation: (1.69*15) = 25.35
Price in which shares to be sold (US Dollars): as we can see Ferrari has huge brand fame and a high demand for its shares, I would set the price of Ferrari to $52. It will result in $893 million by selling the expected 10% shares (17.173 million) shares from the sale of the IPO.
What are the financial implications of Ferrari’s current strategy?
One of the implications for Ferrari would include the fact that even though money is being raised from the IPO, but they will have to pay it out to FIAT due to the payment considerations after the IPO. Before the IPO, 90% of the stake in Ferrari rests with Fiat and the remaining 10% with Ferrari family. However, after the IPO, Fiat Chrysler will hold 80%, 10% still with Ferrari family and the remaining 10% with the public. Even though the money is to be distributed to the shareholders, it will not be a benefit.
Do you agree with the financial forecast in Exhibit 8? If so, why? If not, what specific concern do you have?
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