Fiat Chrysler Automobiles (FCA) has agreed to sell its Magneti Marelli unit to KKR-owned Calsonic Kansei for $7.1 billion (6.2 billion euros). As reported in Bloomberg, it is the first biggest deal for Fiat under the new CEO Mike Manley who took over his boss Sergio Marchionne in July.
On Monday, the companies stated that the new collaboration will be named Magneti Marelli CK Holdings. The unit specializes in powertrain, lighting, and high-tech electronics, Reuters reported, the agreement will allow the new entity to cut costs and expand their customer base.
According to previous reports, the Japanese car parts maker has been in talks with FCA and made an initial proposal of 5.8 billion euros for the unit. As part of the negotiations, the Italian automobile maker declined the offer as the two companies were divided in terms of price of 1 billion euros. Fiat is now set to enter into a multi-year supply agreement with Calsonic Kansei that will maintain the employment levels and Marelli’s operations in Italy. The new acquisition is set to create annual revenue worth over $17 billion for FCA and about 65,000 employees from Tokyo to Milan.
Fiat’s CEO had initially favored the idea to separate the business by distributing shares to investors, stating the company is ready to change its mind for a ‘bigger check’. Following the deteriorating market conditions along with global trade tensions and nation’s political uncertainties, Fiat opted for Magneti Marelli sale instead of listing it on the Milan Stock Exchange.
The deal also came at a time when car parts makers are trying keep up with the expansion and penetration of automotive sector into new technologies such as electric vehicles, connected cars, and self-driving vehicles. In 2016, the U.S. private equity firm KKR bought Calsonic from Nissan and other shareholder. It said that KKR would help Calsonic to expand internationally which previously relied on its former company for major global sales.
Before pursuing talks with KKR, Fiat had fielded interest for Magneti Marelli from various private equity firms and other potential buyers such as Bain Capital, Apollo Global Management, and an unnamed Asian part supplier. The new deal is subject to regulatory approvals and is expected to close in the initial half of next year.