MAY 15, 2002

The Ferrari flotation

THE partial flotation of Ferrari SpA, the company which builds Ferrari and Maserati road cars and which oversees Scuderia Ferrari Marlboro in the FIA Formula 1 World Championship, will have no effect on the way in which the company is run. Although the exact figures have not been announced it is anticipated that no more than 40% of the shares would be sold to the public and that the Fiat Group would remain the majority shareholder. The Fiat Group is not to be confused with Fiat Auto, which is a sister company to Ferrari. Fiat Auto is the loss-making automobile company which builds Fiat, Alfa Romeo and Lancia cars. Other sister companies include the New Holland and Case agricultural machine businesses; Iveco trucks, the Teksid metal company, the component company Magneti Marelli, the toolmaker Comau and the aviation division FiatAvio. There are also a variety of other holdings in the technology and finance industries.

The money raised from the float will help the Fiat Group to deal with some of the debts which have been accumulated recently because of the poor performance of Fiat Auto. Some of the money will however be ploughed back into the Ferrari business to help build up the Ferrari brand with investment planned in a theme park business and potential in a hotel business. Ferrari is selling as many cars as it now wants to sell (to maintain exclusivity) and so the company is now looking at other ways to cash in on the strength of the Ferrari brand (which is massive despite the negative publicity generated in Austria). The company also plans to revive the Maserati company and dramatically increase its sales - particularly in the United States of America - and some of the money is likely to be invested in the creation of a major long-term Maserati sporting program.

The float is believed to have been speeded up with the original plan having been to wait until Maserati had returned to profitability before making the move to the markets but the Fiat Group's need for cash means that it will now go ahead, probably this autumn.

The flotation of racing companies has advantages and disadvantages. While allowing the fans to own a piece of the team they support, it also makes the company vulnerable to pressure when things are not going well and the share price can be affected by what happens on the race track. One can imagine that if Ferrari was already a listed company its shares would have dived on Monday given the worldwide outcry resulting from the application of team orders in Austria. The image damage to the company has been considerable.

But as long as the Fiat Group is in control there are unlikely to be any threats to Ferrari. General Motors owns 20% of Fiat Auto and has an option to buy the entire company but that would have no direct effect on Ferrari. The Fiat Group remains under the control of the Agnelli Family via two of its holding companies IFI and IFIL and as long as the family remain racing fans the team is safe. However the health of the 81-year-old family patriarch Gianni Agnelli is in question at the moment as Italy's most influential businessman is currently undergoing tests in hospital in the United States.

The original plan was for Gianni Agnelli to be replaced by his nephew Giovanni Alberto Agnelli but he died of stomach cancer at the age of 33 in 1997. The family later named Gianni Agnelli's daughter Margherita's son John Elkann as his replacement. Elkann is 26 and is not expected to take over as Fiat chairman for a while. The current chairman Paolo Fresco is 68 but the company's managing director Paolo Cantarella is only 57 and is thought likely to be the most likely man to replace Fresco.