Rumors are circulating that Harley Davidson may be the target of a buyout. It is rumor only at this point, I have no confirmation, Harley Davidson is not talking.
Shares of Harley-Davidson (HOG: 28.04, 1.56, 5.89%) rose 6% to a three-month high on heavy volume Tuesday morning amid trader speculation that the motorcycle maker could be the target of a leveraged buyout from private-equity giant Kohlberg Kravis Roberts.
Link: Fox Business
Tin Man 2 says
Please excuse my ignorence, but I thought a leveraged buyout was used when a Company was worth more than its stock and holdings. Like when Diamler bought Chrysler for less than Chrysler had in the bank. I thought Harley was technicely bankrupt, Id like to hear more on this.
todd says
The change would likely be only on paper.
-todd
Scott says
I just hope if anyone buys them, whoever it is has the sense to sell Buell. There are additional stories popping up about how Harley had an opportunity to sell but chose not to – not only screwing hundreds of good workers but everybody who had ever hoped for a world-class American sport-bike. Every story I read about this is like a knife in the gut.
http://walworthcountytoday.com/news/2010/mar/16/trade-magazine-harley-turned-down-chance-save-buel/
http://www.froggypwns.com/buellpdfs/American%20Motorcycle%20Dealer%20Magazine%20-%20March%202010%20-%20Pages%2050-51.pdf
Tin Man 2 says
Todd, I understand a Buy Out, What I was wondering about is the reference to a Leveraged Buy Out. How can a near Bankrupt Company be leveraged?
Scott says
I don’t think Harley is anywhere near bankrupt. They have a lot of debt, but they also have a lot of assets – not only hard assets such as plants and equipment, but the actual name, designs etc.
Buell, even though they aren’t using it, is an asset. The Buell name and rights to Buell designs could probably be sold tomorrow for enough for any of us to live a very comfortable life . . .
. . . but such pocket change is beneath Harley’s notice and they choose to just let the Buell asset go to waste.
kneeslider says
Scott, the articles you reference are very interesting.
Scotduke says
Alan Cathcart’s a journalist of some experience. He’s been writing for UK motorcycle magazines for years. I’d believe what he says.
Mondo Endo says
Is AMF involved in the negoiations?????
mobilus says
A leveraged buyout is where the buyer uses no to little of their own money, and puts up the assets of the purchased company as collateral for the loans. As in, I buy your house with no money down, and use the house as collateral should I default. Junk bonds = leveraged buyout. A great many companies bought with junk bonds are then broken up and assets sold separately (oft having more worth in pieces). Patents, designs, corporate name & identity, property, tooling and manufacturing would all be sold off quickly, generating more revenue than purchase price in the buyout.
Some of Harley could then end up offshore (India or China) without the offending fanfare of Harley shifting their manufacturing overseas and losing their American buyers. KKR could also rebuy the parts they’re selling off (through third party corporations) and reassemble Harley. This would be done to break the union and loot the pension fund, allowing them to continue making HD’s in the U.S., but having wiped out all corporate debt and pension commitments.
Tin Man 2 says
Mobilus, Thanks for the clarification on a Leveraged Buy Out, It seems my assumption was correct. Only a strong and undervalued company is open to a Leveraged deal… The breakup and Raiding of the Pension Fund will not happen with a Democrat Administration in office. Any buyer would be a Fool to destroy the Harley Trademark, More likely the buyer sees a good opertunity to pick up an Iconic brand at a bargain price. Harley is a Money maker, and the economy is starting to pick up again!
Walt says
As I recall Texas Pacific Group, another private equity player, owned Ducati several years ago. Don’t know more about the history than that.
Walt
Chris says
Nothing you wouldn’t expect when an outsider is at the helm of Harley. Rape, pillage, disgard. Ahh sounds of a company in a death spiral. Then what do you expect from a clothing store masquerading as a motorcycle manufacturer. It’s hard to be loyal to HD when the spirit of the company has been sucked out by the corporate suits. Now we are seeing Phase 2. Hell, HD can’t even make a decent motorcycle for the market they are trying to woo, women riders, might as well be owned by a equity firm.
steve w says
USA owned companies don’t need this at this time. It is hard enough for companies to survive but does the world have to try and take everything and screw it up? Like HD or not they will make it without this. There are a lot of machines to be sold but some of our area dealers are selling the heck out of them right now. Please no more AMF like the past or the Benz drain like they did to Chrysler. Just let us sort this out without intervention.
Zippy says
We live in a free market economy and HD is a publicly traded company. Who ever buys the most shares controls the company. I doubt they will ask us!
hoyt says
Scott – thanks for those links.
You hear about MBA students studying HD’s marketing prowess as a case study. MBA programs need to add the Buell saga as a lesson.
Buell was never accounted for separately on HDs books?! That is just lame, lazy, and stupid. Add to that, HD brings in a complete outsider as CEO. No wonder HD is sitting on their hands like a complete stooge when it comes to Buell.
Those articles are good. Look for a resurgent Buell bike cared for by a company who knows what the F is going on.
Clawbrant says
Does anyone learn ANYTHING from history?!? Remember the last time Harley Davidson was owned by someone other than Harley Davidson? Remember how well that worked out?
woolyhead says
Many of us are enamored of antiques……Harley has survived by updating antiques into fun machines. Contrary to popular belief though……..not everyone wins.
joe says
Lets hope it’s not some money grubbing parasite like Madoff and his cronies.Some of these private-equity giants have a habit of stripping the assets out,keeping brand and then off loading the manufacturing to China.
Scott says
In my opinion, the idea that new ownership would, necessarily, be a bad thing ignores the fact that current management (again, my opinion) is as bad as anything we’ve seen since the AMF days.
I’m sure Wandell is very pleased with the bloated compensation package that was just announced, but, the simple fact is, he didn’t earn that money. He took charge at a time when Harley stock (and the stock of 100’s of other similar companies) had been greatly undervalued by fearful investors who thought the apocalypse was coming. ALL of those stocks have been rising. The board could have put a stuffed Winnie-The-Pooh doll in the CEO seat at the time Wandell was brought in and we likely would have seen a similar stock increase to what we saw under Wandell’s “watch”.
Current management seems to be made up of the type of people who have the twisted idea that the product of capitalism and final goal is money, but that’s far from the truth. Capitalism is about great people making great products and money flows to those people to keep things going.
If someone like Willie G. Davidson, Erik Buell or anyone who actually liked motorcycles was in charge, I’d be nervous about new ownership, but as it is, I, frankly, can’t see how things could get much worse.
Motorcycles aren’t just collections of nuts and bolts. They have souls. Current Harley management is soul-less and, therefore incapable of anything approaching long-term success.
Jim says
KKR must view HD’s market value as under priced and believe it can weather the current economic storm and reposition itself in the market place, so they can make their profit by taking it public again. HD has many assets, both hard and in good will, but they are integral to the core and not worth as much as individual pieces. That makes it difficult to believe that KKR is buying the company to split it up in the manner of the corporate raiders of the 80’s.
Being private has advantages for a company like HD, which needs to reposition itself in the market, if they have access to capital they can effectively ignore the quarterly pressures to turn a profit and that would give them the breathing room to ignore the one percenters who believe HD is only a hulking big twin cruiser.
bob miller says
In his first eight months as chairman of Harley-Davidson, Keith E. Wandell was paid $6.4 million U.S.
The CEO received a base salary of $650,025 starting May 1, 2009, according to a story in the York Daily Record’s ydr.com. To that were added a bonus of $780,030 and stock and option awards worth $4.9 million. He received another payment worth $22,515, most of it in cash.
Wandell took over for retiring CEO James L. Ziemer, who was paid $2.9 million during his final four months at Harley.
Harley-Davidson lost $218.7 million in its fourth quarter, but it has laid off workers, closed factories, and ditched unwanted brands to turn the tide. All this fellow wants to do it get out richer than he came in and selling based on his stock options will do just that. All Harley Davidson will be left with id a Huge Debt !!!!!
Marvin says
As a Brit who travels quite a lot I think this maybe a good thing. Harleys are iconic it really is a very strong brand even over here in Europe its eroding as its misused but still very strong but the current range of bikes could do with a shake up. Even from the prospective of someone who lives in a country where roads have lots of corners the sportster in non-chopper guise is a great bike and it would scale down nicely and still look good. I could see a roughly 450cc sportster (maybe just the front pot) selling very well in Europe, Russia, India and China. So maybe this isn’t a tragic “oh they will move production thing” rather a “this will widen the range and get more of the world on US products thing”. This could be great for the U.S. bike industry.
Sportster Mike says
@Marvin
A 450cc single cylinder Sportster will be way too heavy – its heavy enough with 2 cylinders!! Buell had the Blast, but we never saw that in England and that would be lighter. Harley aren’t doing too badly with umpteen bikes from just 3 engines – but as Colin Chapman said “they just need to add lightness”.
They need a bigger market share with smaller lighter bikes – HD went to Aermacchi years ago – why not outsouce and do a deal with somebody switched on like KTM?
There is a clone of a KTM bike being built in China? with KTM’s knowledge?? not sure.
New bikes? Yes, but keep the old heavy lumps as icons of their time.(yes I DO like them). Brand new retro bikes just like your Dad and Grandad had. And then some new Supermoto and commuter bikes as well
Keep riding..
Thom says
There is a deal going through right now where ATK, the American dirtbike company, will be selling re-badged Hyosung cruisers through certain Harley dealerships. Harley doesn’t like the idea, but the fella that owns these dealerships also has ties to ATK. Maybe this is a sign of what’s to come? Koren-built, light weight Harleys?
Seriously, I hope Harley is exploited and destroyed, American company or not. We deserve better, as motorcyclists, than what Harley has offered us. Buell was the only bright spot in their future, and now that’s gone. It would serve them right to get some of their own medicine.
Materialman says
Any foreign ownership of Harley will destroy the company, pure and simple. As far as this “Private Equity” firm owning Harley, look what that did for Chrysler. As a Harley owner, a Harley shareholder, and an American, this makes me nervous.
Sick Cylinder says
The biggest problem facing Harley Davidson and any future owner is that HD operated its own finance arm to loan customers the money to buy bikes. That seemed like an inspired idea when the economy was healthy, but it was a risky strategy not copied by other bike manufacturers. Becasue of the very high number of customers defaulting on their loan payments HD’s finance arm has a massive debt. No matter how strong the brand or products that mistake will prove very costly for years to come.
Woodman West says
Scott, Motorcycle do not have souls. Humans have souls. If you believe otherwise whoever owns HD should be the least of your worries.
Motorcycles are nut, bolts, steel, rubber and chrome. Certain bikes have distinct characteristics, defined by the laws of physics. They are designed into the bike by the designers/builders who do impart part of who they are into the bike. They do indeed put thier hearts, souls and sweat into these bikes. But the bikes do not have souls.
Having said all that, perhaps you meant the certain bikes, or style of bikes, ie V twins, have personalities. Every Roadstar I ride feels different.
Ride safe.
WRXr says
“Add to that, HD brings in a complete outsider as CEO. No wonder HD is sitting on their hands like a complete stooge when it comes to Buell.”
Must disagree. Sometimes bringing in an outsider is the best thing. Ford for example. Mulally came from Boeing and has managed to keep them above water and moving in the right direction. Unlike the industry vets at GM and Chrysler.
In Harley’s case, however, it seems not to be working.
Scott says
Fair enough Woodman. Let’s not quibble over semantics. The point is this: A motorcycle is a very complicated and emotional thing. It’s not like a gear in which it has a simple task to perform and the ability of it to perform that task can be simply measured in mathematical terms.
What is the purpose of chrome? There are many chrome parts on Harley’s that could be replaced with plastic and the plastic would have the required strength and stiffness to do the job. The Harley designer may feel that he wants chrome, but he has to answer to Wandell and the people Wandell hires. What happens when Wandell or one of his underlings says: “Chrome is too expensive. We will use plastic for that part from now on.”?
If upper management doesn’t get it, what can the designer do? He can argue that the part needs to be chrome, but how do you have that rational argument? He can’t point to numbers or charts to support his position. It’s an emotional choice. If management doesn’t get it (and Wandell hasn’t shown even the slightest hint of understanding what motorcycles are all about) the designer will be forced to do it the way management wants or he’ll be replaced by someone who will.
That was my point. The direction of a company flows down from the people in charge. If the people in charge have no idea what the product is about, the product is in trouble.
Woodman West says
Scott, I see your point also. But let me say this. HD makes the ElectraGlile the standard in big, chromed out V twin “dressers” as we used to call them. Lots of metal and chrome. Thick ABS “bodywork” used to be fiberglass, but still quality stuff. Sell for around $20k. It sells very well.
Go look at, and touch, a Kawaski Vulcan Voyager. A metric copy of the Electra. Most of the chrome is thin cheap plastic, the panels are flimsy and flexy. Saddlebag lids feel like they will break off in your hands. This bike reails for $17-19k, depending on year and ABS options. They are on ebay new for $12-13K. I was planning on buying one, I walked out after seeing the quality.
Folks will pay for quality. We buy the bike we want and can afford. Especailly the big chrome cruiser market. Us old guys with good jobs buy these machines.
I do think HD is forgeting this, hiring a CEO who did not ride was a big mistake in my book. To him Buell was a number. This whole Ann Julian/Oprah market push is pathetic. Lets market to folks who watch daytime TV!!
James Bowman says
Scott interesting articles, as much as I despised the HD treatment of Buell and arogancy they demonstrated when they were on top of the word, it saddens me yet another American company is in trouble post NAFTA/GAIT. I hope that they can be salvaged and some how Buell rises out of the ashes as well. Maybe they didn’t wan’t to sell Buell because if another company managed and marketed the Buell line at a profit it wouldn’t bode well for the HD suits would it? Sad thing is the execs walk out of yet another company with multi million dollar bonuses for failing? This is the new American way no performance clause just pilfer the company, destroy the lives of its employee’s and walk away with a big fat piggy bank for it.
I hope if HD survives they get another brand going with appeal to a broader market than the typical loud cruisers and fringe leather clothing group, they must never forget that group though they already buy the product, but with all the descent paying manufacturing jobs going to the far east middle age men with income are going the way of T-rex and they need to be be prepaired to do better than treat that market other than as an unwanted step child as Buell was. Maybe the next CEO only gets out with a nice nest egg if he turns a profit? Another sad note in America at this time Sigh.
coho says
Nobody will ever know if Buell was, or could have been, a profitable entity since HD just dumped the Buell money in the big pot with all the chrome & bandanna money.
Their unwillingness or inability to separate Buell from the MoCo on paper may have contributed to their decision to shut down Buell instead of selling it. How much do you charge for your sportbike division if you have no idea how much it costs/makes?
Motostrada says
Returning to the original topic, Private Equity firms submit their victims (acquired businesses) to a high debt, cost cutting diet for 3-6 years. In the meantime, they pocket hundreds of millions of dollars in dividends, stock options and management oversight fees. They achieve this by trimming personnel and wages (Mervyn’s), outsourcing (C&A), reducing R&D investment (Dade Behring/General Instrument), selling assets (Warner Music), degrading customer service and product quality (Kinkos/HCA/Hertz), and rising prices (Masonite/Sealy/Simmons). Before principal payments on the stratospheric loans are due, they flip the company, refinance the debt or let it declare bankruptcy.
Ironically, KKR is the second largest employer in America, with roughly 855K employees (Wal-Mart is number one). PE owned companies account for 10% of the US private work force, close to 8 million people.
The future of HD under PE command looks bleak.
Mr M. says
As far as the ATK thing goes, it is funny how during all of ATK’s history, they bragged about how they were made in America, and at the first sniff of green, they start re-selling Korean stuff. They are not “integrating” Korean parts with the Cannondales. The Cannondale stuff is too obsolete and ATK does not even have any tooling. They are just a self-promoting, (B.S.’ing) company that will do anything for a buck.