MILAN/SEOUL (Reuters) – Shares in Fiat Chrysler Automobiles rose 9 percent on Wednesday after a report that South Korean tech giant Samsung Electronics Co Ltd could buy its parts maker Magneti Marelli for more than $3 billion.
Samsung was particularly keen on Magneti Marelli’s lighting, in-car entertainment and telematics business and could consider an acquisition of the whole firm, with a goal of closing this year, Bloomberg said in a source-based report.
Fiat Chrysler (FCA), the world’s seventh-largest carmaker, declined to comment on the report.
A Samsung Electronics spokesman said the company did not comment on rumours or speculation.
The stock has been the worst performer among European auto makers so far this year, weighed down by one of the industry’s weakest balance sheets and investor disappointment over CEO Sergio Marchionne’s inability to find a merger partner.
The shares have lost more than a third of their value this year alone, about twice the rate of losses in the European auto index.
“FCA is currently trading at very depressed levels … the speculation over a sale of Magneti is likely to be positive for the shares,” Goldman Sachs, which has a buy rating on the stock, said in a note.
Goldman puts an enterprise value on FCA of 42.4 billion euros ($47.4 billion) and values Magneti Marelli – which Automotive News ranks as the 30th-largest auto parts supplier last year – at 2.3 billion. This compares with a market capitalisation of 7 billion euros and net debt of 5.5 billion euros.
FCA’s Milan-listed shares, which fell as much as 2.7 percent earlier in the session, rose more than 9 percent, making their biggest one-day gain since October 2014. They closed 8.9 percent higher at $6.62 on the New York Stock Exchange.
Samsung Electronics shares were up 0.7 percent as of 0216 GMT on Thursday, compared with a 0.2 percent rise for the broader market.
A sale of the unit could help FCA pay off some debt at a time when it remains overly exposed to a peaking U.S. auto market and its five-year investment plan is plagued by product delays.
For Samsung, acquiring a proven supplier such as Magneti Marelli could help it overcome the high entry barrier in an industry known for its conservatism and emphasis on track record.
Sources told Reuters last year that FCA was considering a sale of Magneti Marelli after receiving interest from potential buyers. One of the sources said FCA had rebuffed one offer as it was unwilling to sell for less than 3 billion euros.
Marchionne is likely to want a buyer that would ensure a stable supply of components to FCA plants. He said in April there would be a time when FCA would consider a sale of Magneti Marelli, but that the group was “far removed from that today”.
Samsung Electronics and other technology arms of Samsung Group, South Korea’s largest family-run conglomerate, have identified automotive components as a new growth driver as sales in existing businesses such as smartphones slow.
Automakers already include or are developing technologies to enhance safety and provide better smartphone connectivity and entertainment systems, creating an opening for tech companies to break into a market for software, services and components.
“Samsung appears to be moving in the right strategic direction,” IBK Securities analyst Lee Seung-woo said in a report, noting that tie-ups or acquisitions could help Samsung scale up quickly in an industry where it will struggle to grow on its own.
Samsung Electronics Vice Chairman Jay Y. Lee is a board member of Exor, the investment holding of Italy’s Agnelli family, which controls FCA via a 29 percent stake.
The Korean group had 77.14 trillion Korean won ($69 billion) worth of cash and equivalent at the end of the second quarter.
($1 = 1,116.8900 won)
($1 = 0.8953 euros)
(Reporting by Agnieszka Flak and Danilo Masoni in Milan and Se Young Lee in Seoul; Editing by Susan Thomas and Stephen Coates)