Fiat Should Mull Selling Europe Business, Investor Urges Board

(Bloomberg) -- A small Fiat Chrysler Automobiles NV investor is urging the board to consider selling its European business and eventually spin off the Maserati and Alfa Romeo divisions to focus on its profitable U.S. brands.

ADW Capital Management LLC, a long-time shareholder, is pressing these and other proposals to lift the Italian-American carmaker’s shares and “eliminate its turnaround valuation,” it said in a letter sent to the board on Thursday. The fund isn’t among Fiat’s top 100 shareholders.

Fiat’s reliance on the U.S. market was stark during the third quarter, when hot-selling models like the Ram 1500 and Jeep Wrangler led to North American operations generating 97 percent of profits. While return on sales in the region overtook Ford Motor Co. and matched General Motors Co.’s margin, Fiat’s valuation continues to trail both its rivals.

“While Fiat has premium brands which are secularly growing, the strongest balance sheet and highest growth profile of all U.S. carmakers, the company trades at a significant discount to its closest peers, GM and Ford,” ADW Founder Adam Wyden, 34, wrote in the letter obtained by Bloomberg News.

Shares reversed earlier losses and gained as much as 1.3 percent in Milan trading, giving the company a market value of 22.8 billion euros ($26.1 billion).

Wyden would change the company’s name to JeepRAM to reflect its strongest brands and have it adopt U.S. GAAP accounting principles to enable more U.S. index funds to invest in the shares. Here’s a rundown of the fund’s more aggressive proposals:

  • Combine Europe’s Fiat brand with another carmaker focused on the region, such as France’s PSA Group. This would focus management on the higher-margin American businesses that are primed for international growth
  • Spin off or sell shares in a combined Maserati and Alfa Romeo business
  • Merge with a North American peer, such as GM, for cost savings

Fiat had no immediate comment on the letter. The company has said it plans to remain independent through its five-year plan to 2022.

ADW manages $150 million and Fiat is its biggest investment. The fund has previously sought to take an active role in companies where the fund holds stakes. In October, it urged U.S. software provider PAR Technology Corp. to pursue a sale. Wyden wrote a similar letter advocating for Diamond Resorts International to sell itself, months before Apollo Global Management LLC acquired the company in 2016.

Fiat Chrysler is controlled by the Agnelli family’s Exor NV, which holds more than 50 percent of voting rights. That level of control has left little room for investor requests to gain traction. ADW, founded in 2011, has been a shareholder since 2014.

Fiat Should Mull Selling Europe Business, Investor Urges Board

Fiat Chrysler shares have more than tripled since listing in 2014. Sergio Marchionne, the dealmaking, globetrotting former chief executive officer who died earlier this year, helped revive Chrysler from bankruptcy by restructuring the business and separating assets formerly owned by Fiat. Profit has more than doubled profit since 2013 from higher Jeep sales and the elimination of net non-financial debt. Supercar maker Ferrari NV was spun off in 2015.

Since July, when Mike Manley replaced Marchionne, Fiat Chrysler’s U.S. shares have declined 13 percent. The company also has lowered its profit outlook for the year on weaker sales in China.

“We too miss our coach but our team was hard conditioned for excellence over the last 14 years,” Wyden wrote in the letter. “It is our turn now to make the boss proud and play offense.”

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