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Lamborghini looks at some Ferrari-style engineering
[LONDON] At various times during his 14-year tenure as chief executive officer of Fiat Chrysler Automobiles NV, the late Sergio Marchionne held takeover talks with Volkswagen AG.
The news that VW is considering a stock-market listing of its Lamborghini supercar division suggests Marchionne continues to influence the German carmaking giant. By spinning off high-value operations such as trucks and sports cars, VW's boss Herbert Diess would be imitating his Italian peer's successful approach to creating shareholder value. But Mr Diess is struggling to be as daring, which will make it harder to achieve his goals.
When Marchionne took the helm at Italy's Fiat SpA in 2004, its market capitalisation was a pitiful 5.3 billion euros (S$8 billion). During his reign, he merged Fiat with America's Chrysler and spun off Ferrari NV and Fiat's trucks and agriculture machinery business (CNH) into separate companies. When he died last year, the combined equity value of Ferrari, Fiat Chrysler and CNH Industrial NV was 57 billion euros. His successor then completed the 6.2 billion-euro sale of the Magneti Marelli SpA auto parts division.
Mr Diess wants VW to hit a market value of 200 billion euros - up from 80 billion euros now, Bloomberg News reported as it broke the news about Lamborghini, adding that a sale of the brand is also under consideration. (VW says there are "no plans for a sale or public offering of Lamborghini"). Including all of Volkswagen's 12 brands, its financial services arm and its Chinese joint ventures, the company's sum-of-the-parts valuation could top 215 billion euros, Bloomberg Intelligence analyst Michael Dean estimated in August.
In an attempt to realize that value, Mr Diess has started off by following the Marchionne playbook. Fiat began by spinning off CNH in 2012. Mr Diess also kicked off with a June listing of VW's trucks arm, Traton SE.
Marchionne followed the CNH divestment with the listing of Ferrari in 2016, and now it looks like Mr Diess's next step might be his own supercar brand. A sale of Volkswagen's industrial machinery operations Renk AG and MAN Energy Solutions, which is being considered, would be akin to the Magneti Marelli sale. Analysts have even speculated that VW's alliance with Ford Motor Co could evolve into a merger, similar to the Fiat-Chrysler deal.
Yet there's a difference between the boldness of the two companies. Fiat spun out CNH by distributing the stock to existing shareholders, and it did the same with what was left of Ferrari's equity after selling 20 per cent of the company in an initial public offering in New York. Volkswagen, by contrast, sold just 11.5 per cent of Traton to new investors in an IPO and then kept the rest of the stock for itself.
In fairness, Mr Diess has to manage a difficult set of stakeholders. The Porsche-Piech family controls VW, while the German state of Lower Saxony has 20% of the voting shares. He also has employee representatives on the board. The Agnelli family, which controls Fiat, backed Marchionne's ambitions and became significantly wealthier.
Because of its arcane multiple voting-class structure, most Volkswagen shareholders have no say in the running of the company. That might explain why Mr Diess opted for an IPO of Traton rather than a spin-off: Replicating the current VW voting arrangements in a new company wouldn't have been attractive for new investors. But the listing was so small as not to give new investors any real say in the company's running anyway. If the Porsche-Piech dynasty really want Mr Diess to increase their riches, they should encourage offerings that unpick some of their own control.