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Fiat Chrysler Selling its Auto Parts Business to Calsonic Kansei for $7.1 Billion

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【Summary】Calsonic Kansei, a Japanese auto parts supplier owned by U.S. private equity firm KKR, has agreed to buy Fiat Chrysler subsidiary Magneti Marelli for $7.1 billion (6.2 billion euros), in one of the largest automotive business transactions.

Xiaoli Tian    Oct 22, 2018 12:22 PM PT
Fiat Chrysler Selling its Auto Parts Business to Calsonic Kansei for $7.1 Billion

Calsonic Kansei, a Japanese auto parts supplier owned by U.S. private equity firm KKR, has agreed to buy Fiat Chrysler subsidiary Magneti Marelli for 6.2 billion euros ($7.1 billion) in one of the largest automotive business transactions. The deal would make Kansei the seventh largest automotive parts supplier with revenue of 15.2 billion euros ($17.5 billion), the companies said.

The newly formed company will be called Magneti Marelli CK Holdings. is likely to cut costs through synergies and expand its customer base as automotive parts suppliers try to keep up with a shift by carmakers into the high-tech space of autonomous driving, connected cars and electric vehicles.

Private equity firm KKR bought Calsonic from Nissan and other shareholders in 2016, saying it would help the parts maker expand globally.

The deal will also help FCA pay for much needed investments in plug-in hybrid and electric cars in order to remain compliant with stricter future emissions regulations in the EU and elsewhere.

"This combination with Calsonic Kansei has emerged as an ideal opportunity to accelerate Magneti Marelli's future growth," said Michael Manley, CEO of Fiat Chrysler. Magneti Marelli specializes in automotive lighting, climate controls, powertrain and electronics.

Former FCA CEO Sergio Marchionne, who died in July, had set in motion a process to spin off the Magneti Marelli unit and distribute its shares to FCA shareholders by early 2019, but said in June that FCA would still be "receptive" to an offer. The unit has been a FCA subsidiary since 1967.

"Getting this transaction completed at the price agreed is a significant early milestone and accomplishment," George Galliers, an analyst at Evercore ISI told Reuters about Manley and his team's ability to match Marchionne's well-known deal-making reputation.

FCA will divest all of its interests in the new company. Neither FCA nor its top shareholder, Fiat's founding Agnelli family, will have a stake in the combined business. However, Reuters reported that FCA said it would enter into a multi-year agreement to secure supplies to its assembly plants and maintain operations and staff in Italy.

A takeover of Magneti Marelli had seemed elusive as potential bidders were offering too little or were only interested in some parts of the business. Calsonic has been in talks with FCA for months and made an initial 5.8 billion euro bid, sources have said.

FCA does not break out separate earnings for Magneti Marelli, which sits within its components unit alongside two other FCA subsidiaries including robotics specialist Comau and castings firm Teksid. The unit employs around 43,000 people worldwide and operates in 19 countries.

Calsonic is paying around 17 times next year's estimated earnings for Magneti Marelli, according to Galliers' calculations. That's more than double what listed rival part suppliers Valeo or Continental are worth, according to Refinitiv data.

"As this transaction highlights, there is still value in parts of current supplier portfolios, if crystallized appropriately," Jefferies analyst Philippe Houchois said to Reuters, adding that the sale could lead to a special dividend of as much as 2 billion euros.

FCA also preferred the Calsonic offer to a pure private equity bidder because it limits the risk of the unit being broken up, sources said to Reuters.

JP Morgan and Goldman Sachs were financial advisers to FCA on the Magneti Marelli deal, which is expected to close in the first half of 2019. The deal is subject to regulatory approvals.

resource from: Reuters

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