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 world’s 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 that’s 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 – it’s signed a multi-year agreement with Calsonic to keep access to the high-tech bells and whistles while also boosting Calsonic’s 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 Fiat’s stock price rise.
The bigger picture: Japan’s 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). Japan’s 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.