Ferrari spinoff protects Fiat against 'worst-case scenario'

That didn't take long.

Less than two months after Ferrari's chief stepped down after clashing with Fiat Chrysler CEO Sergio Marchionne, the luxury auto brand is being spun off.

Ferrari purists will likely see the move as one more step by Marchionne, who took the reins at the company last month, to cash in on the iconic brand with little regard for what it represents. But the Fiat chief said the spinoff is "really designed to deal with the worst-case scenario."

Along with two other initiatives the company announced Wednesday, the move is expected to raise at least $4 billion for the automaker, which is in the midst of hefty investments to boost its worldwide sales and has more than $10 billion in debt.

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FCA plans to raise at least $4 billion through these three initiatives:

• Sell 100 million shares of Fiat Chrysler to collect between $1 billion and 1.1 billion

• A convertible bond offering to raise $2.5 billion

• An initial public offering for Ferrari, which experts project will bring in $600 to $700 million

Former Ferrari CEO, Luca Cordero di Montezemolo (L) and Sergio Marchionne (R), CEO of Fiat and Chrysler.
Venturelli | Getty Images
Former Ferrari CEO, Luca Cordero di Montezemolo (L) and Sergio Marchionne (R), CEO of Fiat and Chrysler.

Morningstar analyst Richard Hilgert said he likes the Ferrari move and how it will be received.

"Assuming that the cash and debt take up at least 50 percent of the enterprise value, we estimate that shareholders of Fiat Chrysler should benefit by at least $3 per share in trading," Hilgert said.

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Marchionne is hoping to close the deal as quickly as possible, with Ferrari's IPO roadshow starting as early as next month.

"We need to get off our butts and get that done pretty quickly, because the impact on earnings is substantial," he said.

But Marchionne will not be through making moves once the IPO is complete.

While the $4 billion that is expected to be raised will provide the company with plenty of liquidity for the foreseeable future, Fiat Chrysler is in the midst of an ambitious and costly investment plan.

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The automaker plans to invest $76 billion to rapidly increase global auto sales to 7 million by 2018, which would be a 61 percent jump. A big part of that increase will come by pushing the Jeep brand more aggressively in foreign markets, especially China.

To have a greater presence in Asia, Fiat will need to make further investments and expand production in that region.

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