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Pininfarina Seeks Engineering Buyout to Bolster Stock
Turin, Italy, Sept. 22 <A HREF="aol://4344:30.bloombrg.389091.602536905">(Bloo
mberg)</A> -- Pininfarina SpA, best known for its designs of cars such as the
Ferrari Testarossa and the Alfa Romeo Dustin Hoffman drove in ``The
Graduate,'' is hunting for an acquisition to boost its sliding stock price.
Pininfarina made its name as a stylist. In fact, what it mostly does is churn
out low-volume, prettified versions of aging models such as the
three-year-old Peugeot 406 Coupe and, soon, the Alfa Romeo GTV, on behalf of
the biggest car companies. That has turned off investors. The stock has
tumbled 36 percent this year, making the Turin-based company the third-worst
performer on Italy's all-share Mibtel index.
``There's a sense of uncertainty about where the future orders are going to
come from to replace the current models, many of which are in a declining
phase,'' said Giovanni Bocchieri, an analyst with Banca Commerciale Italiana
SpA in Milan, who has an ``underperform'' rating on the company.
Such concerns have prompted Pininfarina, whose designs include the Cisitalia,
the first car to gain a place in the New York Museum of Modern Art's
permanent collection, to hire Rothschild Bank AG to help it acquire an
engineering company. Pininfarina wants to reduce the importance of its
manufacturing unit and boost the higher-margin service side of the company.
Pininfarina is talking to at least one potential target, said Andrea
Pininfarina, the 43-year-old chief executive of the company's manufacturing
unit, in an interview that included his father Sergio, the chairman and chief
executive. The potential purchase is ``not a small company,'' he said.
Pininfarina is mulling other opportunities both in Italy and elsewhere in
Europe, he said.
Low-Volume Versions
While most of Pininfarina's sales come from building low- volume versions --
a convertible, say -- of vehicles that bigger automakers need to complete a
range, it profits most from designing those cars and selling other services.
Last year, Pininfarina's design, research and engineering unit accounted for
22 percent of operating profit on just 4.4 percent of its total sales of 1.2
trillion lire ($527 million).
The company's reliance on manufacturing has pared profit. Net income declined
21 percent in the first half of this year, to 8.6 billion lire. Pininfarina
says he sees profit little changed this year, as competition in manufacturing
squeezes margins.
``We want to have a better balance'' between design,
engineering and manufacturing, said Sergio Pininfarina, whose father founded
the business in 1930.
Competitors who have a stronger engineering business have better weathered
the price pressures that have hurt Pininfarina. Maserati designer Italdesign
Giugiaro SpA, for example, last year boosted earnings 10 percent to 41.6
billion lire -- twice Pininfarina's profit on one quarter the sales.
Giugiaro's stock, little changed for the year, has also avoided following
Pininfarina's slide. Today, Pininfarina fell 0.35 euro, or 2.2 percent to
15.40, its lowest level since August 18. Giugiaro fell 0.2 percent to 8.67
euros.
Switching
``Money managers are switching from Pininfarina to Italdesign because it's
posting better results,'' said Giulio Baresani Varini, chief executive of
Leonardo SGR in Milan, who said Pininfarina shares comprise 1 percent of his
firm's small cap fund.
Mindful of that, Pininfarina says it wants sales from engineering to grow to
100 billion lire by 2003, from less than 50 billion lire last year.
Acquisition or not, it's willing to invest at least 50 billion lire to get
there.
Manufacturing isn't Pininfarina's only weakness, analysts say. It's too
reliant on its two main customers, Fiat SpA and PSA Peugeot Citroen and
``needs to expand its portfolio,'' said Nicholas Potter, an analyst at Fortis
Group's Gilissen Securities in London.
Bolstering the engineering side may help Pininfarina to attract new clients.
For example, Ford Motor Co.'s Jaguar unit recently hired Pininfarina to
engineer a new model. New customers may also help rejuvenate the aging lineup
that now dominates production.
At the same time, it's getting tough for Italian industrial companies to
attract investors amid a flood of technology startups coming to the market.
Visibility
``It's built some very nice cars, but (the stock) doesn't have the greatest
visibility,'' said Potter, who doesn't have a formal rating on Pininfarina.
Pininfarina itself is trying to bring a high-tech sheen to its business.
Pininfarina Extra, a unit which designs consumer products such as watches and
refrigerators, recently set up a joint venture to design Web sites with
Onetone International, a closely held U.S. firm. Annual revenue from the unit
This archive was generated by hypermail 2b29 : Sun 24 Sep 2000 - 23:10:27 UTC