Shares of Fiat Chrysler Automobiles moved sharply higher on Wednesday after Bloomberg reported that Samsung Electronics is in "advanced talks" to buy some or all of FCA's Magneti Marelli auto parts unit. Bloomberg's sources say that Samsung might be considering an outright purchase of Magneti Marelli. Such a deal "could be worth more than $3 billion" and could close by the end of the year, according to the report
Magneti Marelli's connection to Fiat goes all the way back to 1919, when the company was founded as a joint venture in which Fiat was a partner. But here in 2016, it's easy to see why FCA might want to sell: The boss is in a hurry to pay down debt. As of the end of the second quarter, FCA's debt exceeded its cash by about 6.3 billion dollars. CEO Sergio Marchionne's goal is to have FCA's cash exceed its debt by 4.6 billion dollars by the time he retires in 2019, likely in hopes of making the company more attractive to a potential acquirer. As we've seen, Marelli is profitable, but it's a low-margin business. If Marchionne can really get $3 billion or more for it, it's a good deal.
It's no secret that Samsung would like to diversify away from consumer electronics. With the rapid technological changes coming to the auto industry, it's a no-brainer that Samsung might want to follow the lead of rivals like LG Chem, Nvidia, and BlackBerry, each of which has established or expanded significant automotive lines of business in recent years.
There's a reason that FCA's shares jumped on the news: At anything close to the rumored price, it would be a good deal for the automaker. On the other side, acquiring Marelli would instantly give giant Samsung a significant presence as a global auto supplier, positioning it well to be a player in the industry's rapid technological evolution.
Long story short: The deal seems to make a lot of sense. We'll see if it happens.