Fiat Chrysler Automobiles N.V. (FCAU) shares are revving up on news that it has agreed to sell its auto components business, Magneti Marelli, for $7.1 billion.
The deal will move the Corbetta, Italy-based parts business to Japanese manufacturer Calsonic Kansei, which is owned by U.S. buyout firm KKR & Co. (KKR) . The transaction will create a "top 10 global independent automotive components supplier" with revenues of more than €15.2 billion (about $17.5 billion), according to a Fiat Chrysler statement.
The deal is expected to close in the first half of 2019. Shares of Fiat Chrysler were up nearly 5% in premarket trading Monday on word of the deal.
Fiat Chrysler CEO Mike Manley said the planned sale "recognizes the full strategic value of Magneti Marelli and is another important step in our relentless focus on value creation."
The focus on value creation is a continuation of the strategy of the company's late CEO, Sergio Marchionne. The Associated Press said the spinoff of Magneti Marelli has been slated for some time, dating back to Marchionne's tenure.
Manley, who took over in July for Marchionne, said he hopes the relationship between Calsonic Kansei and Fiat Chrysler will continue. Details on what that relationship might entail were not disclosed.
Cash in Hand
What is certain is that Fiat Chrysler will receive a hefty, $7.1 billion payment in order to work toward more of the "value creation" that Manley cites.
The boost to the company's cash position comes amid an increased focus on autonomous driving technology among legacy automakers, including Fiat Chrysler.
FCA will provide Level 2+ and Level 3 Autonomy across markets in 2019-2021, and expects to make Level 4 autonomous driving systems available to its customers around 2023. #FCAFiveYearPlan https://t.co/zPQstUiK1j— FCA group (@fcagroup) June 1, 2018
Fiat Chrysler has been accelerating its efforts in autonomous driving in 2018 as it sets an ambitious target to get these cars on the road. The most notable move was the partnership with Alphabet Inc.'s (GOOGL) Waymo self-driving program.
"Strategic partnerships, such as the one we have with Waymo, will help to drive innovative technology to the forefront," then-CEO Marchionne said.
Our goal is to build the world's most experienced driver & make self-driving technology available across a range of vehicle platforms to make our roads safer. Excited about our growing partnership with FCA! https://t.co/l53nCkd8n2— John Krafcik (@johnkrafcik) May 31, 2018
The increased ability to spend alongside deep-pocketed partners such as Alphabet, which is a holding of Jim Cramer's Action Alerts PLUS charitable trust, should give Fiat Chrysler the capital base to push forward with this important initiative despite the troubles the auto industry is encountering in the face of trade disputes and rising used-car sales.
Cramer said the issues faced by automakers may indeed be a motivating factor of the offload of the components business at this time.
"We think the combination of the need to spend on autonomous driving technology and the lack of a need to buy a new car because the old ones are too darned good have conspired with worries about trade to make cars out of reach for many -- hence why used cars sell so well -- and uninvestable for the trust," Cramer said. "Every time we try we lose, so we stay away."
Fiat Chrysler will get a boost from the cash infusion as it works forward in its partnership with Waymo against the General Motors Co. (GM) and Softbank partnership and Ford Motor Co.'s (F) go-it-alone, safety-first method.
It is worth noting that Ford will be presenting at a Jefferies Financial conference that will focus on technology and how old business models are shifting. Given the news Monday morning, investors will be mindful of whether the contrast between Ford's efforts and those of Fiat Chrysler will come into the discussion.
Fiat Chrysler, Ford and General Motors all will provide their earnings reports before the end of the month.