CNH Industrial Weighs Options for Iveco Truck Unit

Case IH
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Italy’s Agnelli billionaire clan is seeking to replicate at CNH Industrial NV what worked so well during the reign of former Fiat Chrysler Chief Executive Officer Sergio Marchionne: unlocking value by separating businesses that get different valuations from investors.

CNH, controlled by the family and once chaired by the late Marchionne, is weighing possibilities including spinning off the Iveco division or combining it with a competitor, according to people familiar with the matter, who asked not to be identified because the information is private. The company could announce a strategic review of the business as soon as next week, when it’s is holding an investor meeting, the people said.

The company’s farm equipment businesses with brands like Case and New Holland were once part of carmaker Fiat Chrysler Automobiles NV. The possibility of separating the truck business from the company’s more profitable tractor division has long been mooted, with then-Chief Executive Officer Richard Tobin saying last year he would consider spinning off Iveco after further strengthening CNH’s balance sheet.

No final decisions have been made, and there’s no certainty the deliberations will lead to a transaction, the people said. The company plans to unveil a wider reorganization at its investor meeting in New York Sept. 3, the people said. Representatives for CNH declined to comment.

CNH jumped as much as 4.9% in Milan on Friday, valuing the company at 12.5 billion euros ($13.8 billion), following earlier gains in New York on Thursday after Bloomberg News reported plans for a revamp.

CNH’s agricultural business, by far its biggest unit, boasts profit margins that are more than triple those of the trucks operation. The overall company’s valuation also trails its peers in the farm machinery industry, trading at an enterprise value of 5.8 times this year’s estimated earnings before interest, tax, depreciation and amortization. Deere & Co., which only makes agricultural equipment, trades at a multiple of 11.7 times, data compiled by Bloomberg show.

Tobin was a close aide of Marchionne, who long championed separating businesses to help drive more value for shareholders. The strategy increased the value of the Fiat empire more than 10-fold during his tenure, helped by spinoffs of Fiat Industrial SpA, which later became CNH, and super-car maker Ferrari NV. Marchionne died last year.

Tobin left CNH in April and has since become CEO of U.S. industrial manufacturer Dover Corp. He was succeeded by Hubertus Muehlhaeuser, a former vice president of AGCO Corp. and CEO of Welbilt Inc.

The new CEO said at the annual shareholders meeting in April the company was “doing a portfolio review of its assets but considers all business core.”

Iveco division’s returns have long trailed agricultural arm. ( Case IH )

Iveco division’s returns have long trailed agricultural arm. ( Case IH )