Fiat Drops Gears, Speeds Up

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What's going on?

Automaker Fiat Chrysler announced on Monday that it was selling its high-tech car parts business with a superhero-worthy name, Magneti Marelli, to a Japanese rival for $7 billion and its stock shifted up a gear, accelerating 3%.

What does this mean?

Upon completion of the Marelli deal, specialist car parts maker Calsonic Kansei (another contender for the next Marvel movie franchise) will become the worlds seventh-largest independent parts supplier, and better able to compete with the big guns. A bigger company will likely mean more cash to spend on research and development critical for an auto parts industry thats facing disruption from the rise of electric and self-driving cars. The deal should help the combined company steer away from rising costs (via synergies) while also allowing Fiat to better focus on navigating its core car businesses, like Jeep and Maserati.



Fiat will still be calling for parts its signed a multi-year agreement with Calsonic to keep access to the high-tech bells and whistles while also boosting Calsonics order book.

Why should I care?

For markets: Fiat lucks out.

Shares of automakers and their suppliers have flagged in the face of trade tensions and other global speed bumps. Daimler said its profit would be lower than anticipated for the second time in four months on Friday, and Continental cut its outlook in August. But the unexpectedly large price agreed upon for Marelli should give Fiat some financial room to maneuver, increasing the chances of an inaugural investor-pleasing dividend payout and likely contributing to Fiats stock price rise.



The bigger picture: Japans buying up a storm.

Japanese companies have announced more than $200 billion worth of acquisitions so far in 2018 an increase of 60% on the same time last year and the most in more than a decade (tweet this). Japans economy is expanding very slowly. In this cool environment, it may be that Japanese companies are trying to import growth from other parts of the world by buying global firms.

Originally posted as part of the Finimize daily email.

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