Is This Europe's Berkshire Hathaway? -- Heard on the Street
By Stephen Wilmot
Exor is sometimes seen as the European Berkshire Hathaway. The
comparison is imprecise, but the listed investment vehicle of
Italy's Agnelli family still seems a rare bright spot in the global
The most attractive thing about Exor is its record: Since March
2009, when the company was formed out of various legacy Agnelli
holding companies, shareholders have made roughly nine times their
money. That compares to a little over five times for the S&P
500 index and less than four times for MSCI World, which Exor uses
as a benchmark.
The problem with that record, unlike Berkshire's under Warren
Buffett, is that it isn't unambiguously the work of Exor's
44-year-old chairman John Elkann. Much of the value was created at
Fiat, the company founded by his ancestor Giovanni Agnelli, notably
through its 2009 partial acquisition of Chrysler out of bankruptcy.
The 2016 spin off of Ferrari, which now fetches a high
luxury-sector valuation, was another big contributor. Both moves at
the time seemed masterminded by the late Sergio Marchionne, who
died in 2018.
Yet Mr. Elkann is on his way to proving his own financial
discipline, including in the coronavirus pandemic.
In early March, he agreed to sell PartnerRe, an insurance
company Exor bought for $6.9 billion in 2015, to French insurer
Covéa for $9 billion. As stock markets plunged, Covéa tried to
renegotiate. Mr. Elkann stood firm and the deal collapsed last
month. Although it is a shame Exor missed out on a profitable exit,
it was always a reluctant seller. Mr. Elkann's refusal to buckle
under pressure is paying off in the case of another big deal.
In December he agreed to merge Fiat Chrylser, of which Exor owns
roughly 29%, with French peer Peugeot. The terms were favorable to
Fiat, notably because of a EUR5.5 billion ($6.1 billion) special
dividend due to its shareholders before completion. That payout
started to look reckless amid the cash crunch facing auto makers in
the shutdowns. But again Mr. Elkann stood firm, arguing at Exor's
annual general meeting last month that the deal terms were "set in
The financial strain on manufacturers is now easing, and there
is little sign that the car deal will go the way of the insurance
one. Both companies need a merger, and Peugeot has repeatedly
reaffirmed its intention to honor December's agreement (except for
2019's expected dividends, which neither company will pay). The
deal should complete early next year.
The comparisons between Exor and Berkshire Hathaway are likely
rooted in Mr. Elkann's 11-year habit of writing contemplative
annual letters to shareholders, many of them containing quotations
parsed from Mr. Buffett's own annual letters. They became more
serious when he bought an insurance business. Both boast long
The big difference is Mr. Elkann's greater readiness to sell
when he gets a good offer. A better comparison than Mr. Buffett
might be cable billionaire John Malone, whose fortune was made more
through complex deals and spin offs than being in an inherently
attractive business. Mr. Elkann needs to sell -- and keep that
EUR5.5 billion dividend in the Fiat-Peugeot merger agreement --
because he inherited a portfolio with a risky skew toward the
capital-consuming automotive industry.
For now, Exor remains mainly a play on cars. That explains why
the stock has fallen 27% this year and stands 22% below book value
-- an unusually steep discount. Yet the company under Mr. Elkann is
starting to look like a beacon of capital discipline in the sector,
just as Fiat was under Mr. Marchionne. Exor could be one auto stock
that takes investors to a better place.
Write to Stephen Wilmot at firstname.lastname@example.org
(END) Dow Jones Newswires
June 02, 2020 08:06 ET (12:06 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.