Mulling moves for Magneti Marelli
reports remind the market of the potential to dispose of Magneti Marelli (Exane valuation EUR3bn).
We analyse MM businesses and find FCA has three different options to leverage the value in its
main supplier division, which we present in increasing order of likelihood.
#1) In-house restructuring of MM top-line and profitability
MM ranks poorly vs EU rivals on top-line growth and profitability (-350bp vs avg). This may well be
due to lack of focus on a business that is a minor concern within the group, as MM accounts for c5-
6% of sales and profit for FCA. Every 1% increase in MM revenue would only fetch a c0.3%
upgrade to FCA’s EBIT while a 100bp improvement in profitability only equals a 1.5% upgrade to
FCA’s EBIT. We think the upside in executing a major MM restructuring is thus rather low for FCA.
#2) Sale to an industrial or financial buyer
A sale of MM to industrial or financial buyers is perhaps the most consensual view. The obvious
rationale for a financial investor is to restructure to drive growth and profitability expansion and
eventually multiple enhancement, ahead of a future exit. Auto suppliers would be interested in
MM’s technology (especially Lighting) and in its EU exposure (Chinese suppliers). FCA has some
optionality to sell individual divisions rather than the whole business, but the absolute size limits the
valuation it could achieve in divisional sales and FCA risks being left with unsold divisions.
#3) Key tactical lever in a potential FCA/PSA merger
We are convinced that an FCA + PSA merger is still the most sensible goal for both OEMs, putting
the option of a MM + Faurecia combo clearly on the table. MM would enhance Faurecia's portfolio
with its Lighting and Powertrain businesses while leveraging synergies in Interior, Emission Control
and Exterior. The combined exposure to FCA would be an acceptable 13% and we believe the only
real hurdle would be the negotiation on respective valuations. Faurecia is publicly interested in
restructuring its product portfolio, a desire that could turn into an advantage for Mr. Marchionne in a
negotiation for a potential FCA/PSA merger.