Exclusive: Fiat Chrysler to spin-off Magneti Marelli without raising money - sources

By Pamela Barbaglia, Arno Schuetze and Agnieszka Flak

LONDON/FRANKFURT/MILAN (Reuters) - Fiat Chrysler Automobiles NV (FCA) (FCHA.MI) is looking to spin off auto-parts business Magneti Marelli to its shareholders via a Milan listing that will not raise money by selling new shares, four sources familiar with the matter said.

Under the deal, which is aimed at giving Magneti Marelli more flexibility - including to raise money in future - FCA investors will get shares in the parts maker in proportion to their existing FCA holding, the sources said.

Advisers initially looked at a possible initial public offering for the 99-year old parts business to raise cash to cut FCA's debt, but the Agnelli family - FCA's main shareholder - were put off by low industry valuations and did not want their stake in Magneti Marelli to be diluted, three of the sources said.

"At this stage it's not worth going down the IPO route," said one of them. "Other than trimming FCA's debt, a listing will not bring any immediate benefit to FCA investors."

The move could be announced by FCA CEO Sergio Marchionne, who carved out and listed luxury sports car maker Ferrari (RACE.MI) in 2015, when he unveils his new strategy plan on June 1, the sources said.

Goldman Sachs and JPMorgan have been appointed to spin off Magneti Marelli alongside law firms Sullivan & Cromwell in the United States and Legance in Italy, the sources said.

The business, which sits within FCA's components unit alongside robotics specialist Comau and castings firm Teksid, could be worth between 3.6 and 5 billion euros ($4.4-6.2 billion), analysts say.

But it would likely trade at a discount to peers including Germany's Hella (HLE.DE) and French parts makers Faurecia (EPED.PA) and Valeo (VLOF.PA), they add.

The Agnellis own 29 percent of FCA through their holding vehicle Exor (EXOR.MI).

FCA, Goldman Sachs, JPMorgan and Legance declined to comment, while Sullivan & Cromwell was not immediately available for comment.

FCA said on Feb. 28 its board would review a possible spin-off of Magneti Marelli in the second quarter, after Marchionne said he wanted to "purify" FCA's portfolio.

The sources said the Italian-American carmaker had so far held back from sounding out possible bidders for the unit as it didn't want any distractions to the planned demerger this year.

But the spin-off may face some hurdles, as some investment funds that hold FCA stock may not want to hold onto Magneti Marelli shares, one of the sources said.

This source said some funds may be restricted by investment guidelines allowing them to invest only in global players such as FCA, and not in a medium-sized Italian supplier.

After the spin-off, FCA will focus on finding a new owner for Comau, but it wants to keep full control of Teksid, the sources said.

Magneti Marelli, which employs around 43,000 people and operates in 19 countries, is a diversified components supplier specialised in lighting, powertrain and electronics.

It had revenue of around 8.7 billion euros in 2017, according to analysts, and adjusted core earnings of around 840 million euros.

Magneti Marelli has often been touted as a takeover target and FCA has fielded interest from various rivals and private equity firms over the years.

South Korea's Samsung Electronics made a bid approach in 2016 but negotiations fell through as it was only interested in parts of the components maker, sources have said.

FCA has yet to appoint advisers on Comau, which has 15 manufacturing plants and 35 operational centres around the world and has already drawn interest from Chinese and Asian buyers, one of the sources said. The source pointed to the sale of German robotics maker Kuka to China's Midea in 2016.

Reuters reported that Shanghai Electric, Sinomach and Shanghai Institute of Mechanical and Electrical Engineering (Simee) were among Chinese firms eyeing bids for Comau in 2016.

(Editing by Mark Potter)