Business Breakdowns
· Zack Fuss
[00:00:00] S0: I'm Zack Fuss, and today we are breaking down Exor. The origins of Exor date back to the end of the 19th century when Giovanni Agnelli founded the auto company Fiat. In 1923, Exor acquired the Juventus Football Club, which it still owns today. But over the company's 100-year-old history, a lot has changed. While some of the core assets remain the same, today Exor serves as an investment holding company. Its largest and most notable assets are Ferrari, Stellantis, CNH, Stellantis, Philips, and a number of other notable private companies. Additionally, they've shifted focus to bulking up their alternative asset management business, Lingotto. Like many holding companies, Exor trades at a material discount to what the sum of its parts suggests. But management has been steadfastly working to close this discount by selling assets, reallocating capital, and repurchasing shares. Today, Exor is led by John Elkann, the grandson of the late Giovanni Agnelli, the founder of the Exor empire. Elkann was named heir of his grandfather at the age of 21 and has fostered and reshaped the business to what it is today. To break down Exor, I am joined by Krishna Mohanraj, a portfolio manager of the International Strategy at Diamond Hill. We hope you enjoy this breakdown of Exor. All right, Krishna, thanks for joining us once again, this time to break down Exor, a business that has a storied history. Our listeners probably know a little bit about a lot of the parts of Exor, but I think bringing it all together today in this conversation to highlight the history of the business and what is in this family holding company will be really interesting. So just to kick things off, what is Exor?
· Krishna Mohanraj
[00:00:00] S1: Zack, thank you. It's great to be back. Thanks for having me again. Exor is a fascinating business to talk about. It is a Dutch holding company controlled by the Agnelli family. Giovanni Agnelli was the founder of Fiat in the late 19th century, and their family wealth is managed through this holding company. It's a fascinating story for a couple of reasons. First, you've got the history. As you mentioned, Exor is a Dutch company on paper, but in its bones it's all Italian. It's really the history of Fiat, so it's intimately tied with the history of industry in Italy. Throughout the 20th century, Fiat was the industrial engine of the country. Fiat's factories were dedicated to the war effort during the First World War. After that, it became a big part of the industry growth in Italy—80% of the Italian auto market was Fiat. Moving into the Second World War, again, post-war, Fiat was a big part of the rebuilding of Italian industry. The Fiat 500 was iconic, launched in 1957, a huge global commercial success, and put Italian engineering and design on the map. After that, you have the tie-up with Ferrari. So there is a lot to talk about when it comes to the history of Fiat. The second reason it's interesting is that it's a story that's still evolving. It's a holding company. It's always changing. You're not looking at one business in one sector, and especially when you've got someone like John Elkann at the helm. John Elkann is the great-great-grandson of the founder of Fiat, someone who's uniquely qualified to be in that role, someone who not only represents the family but also someone willing to learn, not afraid to change and make changes. At Exor, it means the Exor of 2035 is not going to look anything like the Exor of today, and that makes the story much more worth following.
· Zack Fuss
[00:00:00] S0: So you alluded to the leadership of John, who I believe has been with the business intimately for the better part of the last, call it 20 or so years, but still a very young guy who's now shaping the direction of the firm. When you look through the history of the business and its leadership, how has every chapter changed as they made that transition?
· Krishna Mohanraj
[00:00:00] S1: It's fascinating because you can actually look at the history of this company through three leaders who all have had an outsized impact on the group. Two of them were called Giovanni Agnelli, and the third one, of course, is John Elkann, who leads the group today. If we go chronologically, there were not one but two Giovanni Agnellis in that history. One is the founder, and the other is his grandson. Both are remarkable. The founder, of course, he was an entrepreneur, a very strategic thinker. Under his leadership, Fiat transformed from just a startup car maker to a large industrial conglomerate. It really became the symbol of Italian engineering, and he was also very politically influential, was a senator in Italy for over two decades. So that was the first Giovanni. Then you have the second Giovanni, the grandson. He was called Gianni. He was a character both in business and outside. He was groomed by his grandfather to take over the business, and he transformed Fiat into a global company over a period of almost 40 years at the helm. Crucially, he formed the partnership with Ferrari, which over the years has become a masterstroke for the family's fortunes. And outside the business too, he made a mark as a global fashion icon—dashing, colorful, international figure. He was very much in the international who's who of that time. So that was the second Giovanni. Then you have John Elkann. Now, he's the grandson of Gianni and great-great-grandson of Giovanni, the founder. And at just 21, he was nominated to inherit the leadership from his grandfather, somewhat mirroring the way his own grandfather was chosen to be there, so there's a nice symmetry to that story as well. You have these three key people who I think were responsible for building pretty much what has become Exor today. But really, Exor of today was set up much, much later in the story, in 2009, and the reason was to simplify how the family's assets were managed, because before that it was a complex mess. And in many ways, what Elkann has managed to achieve is to simplify that ownership under the Exor umbrella. In fact, the original holding company of the assets goes all the way back to 1927. It was called IFI. Agnelli set it up to hold his investments, primarily his shares in Fiat and also some other businesses along the way.
· Krishna Mohanraj, Zack Fuss
There was also a second holding company called IFIL, which further complicates how the family fortune was structured and managed. With Exor, all this has become simple. You've got both the holding companies merged, everything born under the Exor umbrella. The legal headquarters was moved to the Netherlands. The listing was moved there as well later, so everything came under a single country regulatory authority. It all made sense because you get full exemption on capital gains and dividends, a very competitive tax rate, extensive tax treaties globally. So it made sense for a global company to be based in the Netherlands. All that was done under Elkann. There you have both a long history of the Fiat group, but also under Elkann, over the last maybe 20-odd years, we've seen a lot of change. [00:00:00] S0: It's interesting because if you look at some of these family-led holding companies which have listings, they're typically extremely complicated. I think about the Bolloré group in France, but this one actually, in the scheme of things, is somewhat straightforward. Obviously John Elkann, the architect of a lot of that. And today we have what's primarily listed companies inside of this tax-efficient holding company. I guess it's a good time to present, of the 40 billion plus assets that they own, what is inside of this holding company today that he's effectively cleaned up over the course of the last 15, 20 years?
· Krishna Mohanraj, Zack Fuss
[00:00:00] S1: Today, if you look at Exor, you've got stakes in listed global companies, and then you have the private investments. It's weighted very much towards the publics—70% of gross asset value. And gross asset value is roughly, let's say, 45 billion euros. 70% of that is in four companies: Ferrari, Stellantis, CNH Industrial, which is Case New Holland, and Philips. Then you've got maybe another 6 or 7% in smaller listed investments—IVECO, Juventus, which is a football club, Clarivate. The rest is in private investments, so a range of investments there: Louboutin and Shang Xia, which are in luxury; The Economist magazine; Welltec, which is a Danish tools company in the energy sector. You also have an asset management firm that they set up a couple of years ago called Lingotto. If you think about that evolution, it's probably worth talking a little bit about how much that's changed. In 2009, when Exor was born, it was predominantly a mass-market auto company with a few other assets thrown in. But with this transformation and the unlocking of value in Fiat, it looks very, very different today. Ferrari is their largest asset, and like they say, Ferrari is not a car company. And Stellantis, which is the auto company, is only about 10 to 12% of assets. [00:00:00] S0: So if you think about the composition of today's business, John is paramount in architecting that. So what is it that's influenced him to craft the company in this way? What else is there to learn about John, who seems to be one of the more underrated business builders of his generation?