Shares in a slimmer Fiat (FIA.MI) and sister company Fiat Industrial FI.MI are set for a choppy debut on Monday, their first day of trading under a new company structure that aims to boost growth and help forge alliances.
Fiat Industrial, the company whose assets include truck maker Iveco and tractor company CNH Global NV (CNH.N), is being separated from the carmaking business Fiat.
The split, part of Chief Executive Sergio Marchionne's efforts to revamp Fiat in one of Europe's biggest industrial turnarounds, is expected to speed up a merger with U.S. auto maker Chrysler and free Marchionne's hands for other initiatives. Fiat owns 20 percent of Chrysler.
Although, in the short term, the rump auto group will face a tougher market than truck-and-tractor maker Fiat Industrial amid dwindling auto sales in its core European market. Fiat's car sales in Europe dropped 23.8 percent in November.
"We believe that Fiat's stock price has still good upside potential on a fundamental basis," said Banca Akros analyst Gabriele Gambarova in a research note.
"In addition, the de-merger is likely to trigger initiatives and open new scenarios which may add further 5.4 euros to our target price," said Gambarova, who had a target price of 18.30 euros for the combined group.
Each existing Fiat shareholder will get one share in Fiat SpA and one share in the separately listed Fiat Industrial.
"Certainly (the two shares) will be very volatile," Centrobanca analyst Marco Cristofori said asked about how he expects the two stocks to trade on Monday.
Based on Fiat's 15 euro ($20) share price in late December, three brokers forecast Fiat Industrial opening at between 7.5 euros to 8.6 euros and Fiat at between 6.4 euros to 7.5 euros.
FREE HANDS
The demerger, unveiled in April, aims to unlock value in Fiat's shares, which had been capped by a so-called conglomerate discount, and give the two groups more strategic options.
"From an industrial and financial point of view it the only way to ensure the best growth outlook to each division," Marchionne told Fiat managers at as he met before Christmas.
"The two groups that will emerge from the split will have more room to maneuver, also in the event of possible new alliance," he added.
Market participants are braced for sharp swings in the two companies' share prices on the first day of trading, as Fiat and the Milan bourse have not set reference prices that are sometimes used to guide investors.
"The first day is to stay out (of the market)... and wait some time," said one broker who asked not to be named.
One possible steadying factor will be the inclusion of both Fiat stocks in Milan's blue-chip FTSE MIB index .
The car company Fiat is expected to be less profitable in the short run as it invests to build on its stake in Chrysler and compete on world markets.
But longer term the unit could generate value by deals such as the potential listing of luxury sports-car brand Ferrari and parts business Magneti Marelli.
"Fiat Industrial has the best prospects in the short term... good cash generation and low investments. For Fiat Auto we have to wait for 2012 and new models," Centrobanca's Cristofori said.
As part of Marchionne's plans, Fiat could invest up to 20 billion euros in struggling Italian carmaking plants to boost productivity. Marchionne has already gained two landmark accords with unions to increase shifts and limit strikes and benefits.
Fiat closed on Thursday at 15.43 euros, the last trading day of 2010, up 49.5 percent on the year. The stock has slightly outperformed the auto sector .SXAP, up 44.8 percent for the year. ($1=.7479 Euro)
