The boss of EXOR showed confidence on Wednesday in the success of three transformative deals set to reshape its multi-billion portfolio of corporate holdings, despite being caught at mid-air by the coronavirus crisis.
In a letter to the holding’s shareholders, boss John Elkann, the scion on Italy’s Agnelli dynasty, said his family had been in business for a long time and had “overcome wars, revolutions, crises and pandemics.”
But the market chaos created by the pandemic may make those deals less lucrative: the proposed merger between EXOR-controlled Fiat Chrysler and France’s PSA , which includes a 5.5 billion euros [US$6 billion] special dividend for Fiat Chrysler’s (FCA) shareholders; the sale of its 100% stake in reinsurer PartnerRe to France’s Covea for $9 billion cash; and the spin-off and listing of truck, bus and powertrain businesses from CNH Industrial.
The tumble in share prices triggered by the coronavirus outbreak has shaken the multiples underlying those deals, potentially leading to rediscussion of their terms.
Elkann on Wednesday said he was very confident the combination would allow FCA and PSA to achieve a planned target of 3.7 billion euros [US$4 billion] in annual synergies under the lead of current PSA CEO Carlos Tavares.
Analysts think the merger is essential to the two group’s long-term competitiveness, especially now that the virus crisis has forced them to shut most of their plants and virtually erased car demand.
But analysts at Jefferies said adjustments to the deal’s terms were “inevitable,” barring a return to normal trading conditions no later than third quarter.
FCA’s 1.1 billion euro [US$1.2 billion] ordinary dividend could be postponed or canceled, while the special dividend to FCA shareholders would need to be adjusted in amount or timing, Jefferies said.
EXOR’s investments span from the automotive to the insurance sectors and also include industrial vehicles, editorials and football.
Elkann said on Wednesday the decision to move ahead with ParterRe sale, after Covea’s “unsolicited” offer, was a “difficult” one.
The deal is expected to be closed by 2020-end.
Covea last month said it was committed to the acquisition of PartnerRe but did not give further details.
Martino De Ambroggi, an analyst at Italian broker Equita, said it would be rational for Covea to try to rediscuss terms or step back in light of the coronavirus crisis, although it would probably have to pay a penalty. But he added that EXOR was not in a hurry to sell.
“If Covea asked for a huge discount I think the most likely scenario is that the sale would be canceled,” De Ambroggi said.
Announced last year, the process to spin-off and separately list CNH Industrial’s truck, bus and powertrain businesses is due be completed at the beginning of 2021. But the group might need more time to finalize it as a consequence of the virus crisis.
An investment banker, who asked not to be named, said the the spin-off posed risk in the current environment.
“Iveco is the weakest part of the business: in a market which is heavily contracting, it could prove hard for it as a stand-alone entity,” he said.
In preparation for the spin-off “it will be important for CNH to improve its performance after a disappointing year in 2019,” Elkann said on Wednesday.
(Reporting by Giulio Piovaccari; editing by Alexandra Hudson)
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