Just a couple of weeks ago, word got out that Ducati is looking for a buyer, possibly considering Volkswagen and BMW as potential suitors. Then a week ago, up pops Hero MotoCorp in a relationship with Erik Buell Racing, showing they have intentions beyond the small displacement motorcycles they’re currently known for. Now, in what has to be one of the more surprising developments in all of this, word is out that Hero MotoCorp is talking to bankers about a possible acquisition of Ducati. Wow! I guess they really are trying to expand into another market.
“We’ve been seen as a utility-bike maker, fuel-efficient bikes, and somebody who’s at the lower level of the market, who’s more small-town and rural-market focused,” said Munjal. “So our ambition is to become one of the biggest global two- wheeler players and to do that, you cannot only be in one small segment”
This may be very preliminary and no one is going to be talking about it outside the boardrooms where the discussions are taking place, but what is becoming clear is many more buyers may be getting into this game than everyone initially thought.
Let’s see, a company manufacturing motorcycles in Italy, with its largest market in the USA and owned by a company in India. Would it be any different if they were owned by a company in Germany? Does any of this even matter any more? Hero MotoCorp certainly wouldn’t be the first name to pop up when you think of a Ducati sale, but it does make you wonder who else may be interested in the Italian manufacturer.
UPDATE: In an update to their previous article, Bloomberg reports Hero has cash reserves of about $1 billion, quite an accomplishment, considering their current range of motorcycles start at $763.
“Investors are scared about Hero’s plan of buying Ducati,†said Umesh Karne, an analyst with Brics Securities Ltd. in Mumbai. “Hero will have to take on the burden in terms of Ducati’s debt so initially there may be some pain.â€
This is going to be an interesting process to follow as the big money starts to circle Ducati. Ducati enthusiasts probably need not worry about the company continuing with its product line, at least for the near term, since that is the value, along with the underlying technology, that’s being purchased. However, if a company like Hero is trying to branch out and establish itself as a player in a much larger market and they are successful in their acquisition, sooner or later, motorcycles with Ducati’s technology may begin to appear with the Hero nameplate. Hero in MotoGP? Like I said, this could get very interesting, especially as the other potential buyers begin to see new and unexpected suitors moving in.
Link: Bloomberg
Link: Bloomberg updated article
Generic1776 says
Cool.
This is like InBev buying Anheuser-Busch (Budweiser) and all the subsidiary breweries. People go into shock that a “national icon” product is no longer a native company so they refuse to buy the product, but that is a minority of folk. The majority of people see a label expanding and are either attracted to buying the “new and improved” product or would have purchased that product anyway.
For Ducati, this is a good thing.
For Eric Buell Racing… this may be the support he didn’t get from The Motor Company.
Paul Crowe - "The Kneeslider" says
What’s interesting is Hero’s name never came up when the first talk of Ducati being up for sale was buzzing around. I guess when you sell millions of small bikes you can generate a lot of cash, just as easily as if you sell a lot of the more well known cars and motorcycles. But is cash enough? Ducati wants to grow the firm, not just look for a new owner. Whatever the case, this is getting more and more interesting.
Generic1776 says
That’s why Hero teaming with EBR is a very good courtship for both companies.
Q. Is cash enough… A. If it was just a bank account, the answer is “no”. But the revenue generation which results in $1b cash on hand is what makes them prime for strategic growth.
The first step is Hero + EBR putting the “Hero” label on the most important bike to come out of the US right now. Eric Buell carries more industry press for his past with HD, the fallout, and the resulting 1190RS (an extremely limited production bike) than when talking to the “American” motorcycle brand. (Which is a fairly narrow market)
With gas prices rising the US, the market for small capacity motorcycles explodes. Back in 2008, the last time we had “threats” of European gas prices, every small capacity scooter/bike on a showroom floor sold before it arrived in stock. At that time the only brand that could meet the demand was Kymco, who previously had very little brand recognition in the US. If the price of gas is on the rise again, there may be another rush on small capacity bikes, opening the market for the smaller capacity Hero bikes.
Pumping luxury brands. When Jaguar was under Ford, the brand was whitewashed into mediocrity for the sake of cheap variations on a theme. (The S-Type was a Lincoln LS and the X-Type was a Ford Taurus, with minor interior and exterior changes.) Tata Motors took the Jaguar brand and made a modern Jaguar. I see them all over Southern California now. It was a success, even if a low volume one.
Ducati brings “Exotic Italian”, but they are trying to expand out of the race bike segment… while the cost of racing is getting more expensive every year. The good news is Ducati doesn’t have to win races to maintain sales. But the other side of that same sword means the investors will look at cutting racing funding to increase margins. Ducatii needs more funds to maintain world class race development while expanding markets into more consumer friendly vehicles.
The real answer is “Hero should do both” but work deals that don’t require less than 50% of the cash reserves. EBR is easier to support, since they are a small company with lots of ideas on the next 5-8 products they want to produce. Ducati may require more funds to weasle it away from the current owner, but he’ll take what he can get since there aren’t enough buyers to make it a seller’s market.
todd says
I’m sure Ducati won’t mind having an established distribution network in India. The sales there could potentially outstrip those of the US if they can work around the tariffs.
-todd
Hooligan says
I don’t think I’ve ever seen a Hero motorcycle in Europe. Every other pan Asian manufacturer yes. But Hero no. Only Indian built bikes you see are Enfields.
But Hero have cash to splash as they are a big player.
Hell I’d buy Ducati – got errr £20 in my pocket, give you the rest next week?
.
Cameron says
Don’t forget that Ducati didn’t always make race bikes. They started with a motorized bicycle and moved up to a big 250. It doesn’t really matter who owns Ducat. As long as they keep pumping money into racing and technology any new owner will benefit from the trickle down effect of the technology making their whole product line better. As for not knowing who Hero is, no one knew who Honda was in 1960 yet ten years later they were a household name.
Paulinator says
I can`t think of two more polarized business cultures. Dukati is a high-end marque. When I look at one I see some advanced technology and uncompromised attention to detail, whereas Hero is a….well…I’ve never seen a Hero, but I’ve seen some poorly made shovels and tacky home decore with “Made in India” stickers on ’em. The poligamous marriage of fiercely independant EBR and Ducati seems conflicted, too. What was the motive for Hero to procure both groups? What do they want? I don’t know what benefits will come of all this, but I am starting to worry for EBs long-term interests.
ps Enfields r cool
Richard Gozinya says
Just going by what’s on their website, while the bikes aren’t ugly, they’re not exactly exciting either. Modern, yet uninteresting styling. The names of the bikes are about as cheesy as it gets, with names like “Glamour, Splendor, Hunk, Achiever.” All packing tiny thumpers, but that works perfectly within their market. And perhaps the names don’t seem quite so cheesy to Indian culture.
JSH says
It makes a much sense as Tata motors buying Land Rover and Jaguar. A new owner with lots of cash gave those brands the money they needed to make next generation products and expand into global markets like China.
Paulinator says
I seem to remember that Tata went right back to the UK government for funding. Any chance that Italy (Germany) will buck up?
JSmith says
With the recent partnership between AMG and Ducati I would love to see Mercedes get into the business. I think they would have the resources to grow Ducati worldwide. They certainly have the funds for it. And they have enough brains not to mess with ducati’s success!
kevin says
I agree with you. Mercedes would be a good choice. I’ve always thought BMW might want some Ducati action to diversify their income streams.
AlwaysOnTwo says
You asked two questions. They can be answered, but it will be tough, really, really tough.
You see, you’d actually have to READ the paragraph where one of the Hero founding brothers (Munjal) TELLS you(in quotation marks, those funny little ” thingies) what they want and why they’re interested. Take your time, the first sentence is about 30 words long, and the second (whew, are you up to the strain?) is another 26 words.
Stick with it, I just know you’ll make your mommy proud.
AlwaysOnTwo says
That’s for @Todd, so why does the reply button sometimes post as a new comment? I dunno, maybe it’s owned by HERO.
AlwaysOnTwo says
And now I’m having dyslexia, because it wasn’t for Todd it was for Paulinator! OMG.
Paulinator says
No AlwaysOn Two, I think that was the coffee.
Hero is a cash-rich motorcycle manufacturing body that was recently severed from its brain (Honda). Its market is specifially small displacement product in an emerging economy (and I`ve read, troubled to the point of being replaced as the I in BRICK). Honda, incidentally, is building a third factory to serve that competitive market. That shouldn`t be a factor, though, since we all know how poorly Honda is represented in small displacement basic motorcycles (and mid-range, and litre-bikes, and touring, and, and, and…).Ducati has numarically insignificant sales in NA. I would have to gas up and pack a lunch if I wanted to visit a showroom. I may be wrong, but I can`t see much cross-polination with technology from Duck to Hero. That`s like crossing a chicken and an elephant. Try it and you get a dead chicken with daylight beaming out its mouth. EB already knows that. As someone on the KS recently stated `the core gets what the core needs`. If Hero has to implement survival measures and clott, will thier new aquisitions be out on a limb like MV…and Buell?
So you tell me, Always, What DO they want. Do they know?
AlwaysOnTwo says
No, it wasn’t the coffee it’s always my clumsiness.
What they want is, quite simply, more. Of the whole pie. Their approach is acquisition rather than development. Why invent a new wheel when you can buy the title and rights to wheels already being made and put your own brand on it?
Straight forward corporate thinking on a global scale, in which they acknowledge there is more money to be made selling a lot of everything than continuing to sell a lot of what they already got sold. That’s downright American consumerism right out of the sixties.
Cross technology isn’t even an issue since again, you buy what works for Ltwin purists interests from Duc, clone manufacturing rights from Honda for the small bike market, Buell for the potential VTwin sport market, etc. None of them may be major market percentiles (else they wouldn’t be for sale anyway) but taken as a group they add up to domination of specific markets. And a bigger pc of the pie in general rather than tooling up to compete with a new machine that just dilutes the mix.
Not rocket science, but not the way most motorcycle companies think. But not unique, either (can you say Po lar is).
See ya.
Hawk says
What about the Ontario Teachers’ pension funds?
Hawk says
Oops, I meant the Hospitals of Ontario Pension Fund. (Me bad.)
Cameron says
I am quite sure that Honda did not hand their racing notes and R&D results to Hero. Hero makes 10 year old Honda clones at best. They have money and need data. If they own Ducati outright they, with EBR, will quickly collect the data they need to create world class bikes. I’m sure Hero could care less if they ever sold a single bike in North America.Our market is insignificant compared to the emerging markets.
Tin Man 2 says
If Hero or anyone else just needs the data they could simply reverse engineer any bike on the market. Just as the Korea and China are doing with the Auto Industry. Its the Ducati brand that is important, anyone can copy the engineering.
Tom says
I’ve been expecting this. Arch rival Bajaj owns some 40% of KTM and is now co-developing bikes for world markets.
I have an “Encyclopedia of Motorcycles” from 1995. While it covers hundreds of forgotten brands and companies from one hundred years ago, it does not even have an entry for 7 of 2012’s largest 10 motorcycle manufacturers. It’s a new world.
Jar says
I liked Tom’s comments quite well.
I’ve kind of expected the same – but more from guys like Mahindra or Tata, who I think were in rumor mill initially. Whatever happened to some of the bigger Chinese companies, like Chery or Geely?
As far as getting a look at “data” – this could be a simple motive as well, come off as serious to get in, look around, learn a few things. Believe this was what was going on when years back HD got a look see. And while TinMan is correct when he discusses the potential for virtually any company to “reverse engineer” a particular product, there is more to “data” than hard parts – business plans, marketing directions, market studies, supply base, and certainly interesting bits on the hard parts, all up for review should one be considering purchase – without the need to buy product and tear down.
What I think is unique in this situation is that for all our knowledge looking in, Ducati seems to be doing pretty well right now. Strong brand, market, and product. This is not (doesn’t seem to be) an ailing company in need of help of restructuring. In the past, stories of this nature always swirled and centered around companies needing assistance. That doesn’t seem to be the case here. We seem to have a top player, at the top of their game, on the block.
For these reasons, I think it makes sense that there is likely much interest, and that it is far ranging – global – in its makeup.
Hooligan says
Hero’s in MotoGP? Why not?. The 125’s were abandoned in the name of Moto2. But the grand MotoGP plan has unraveled. Manufacturers dropping out because of the expense in these tight times. So this year 1000cc “production” bikes are going to fill out the grid with the prototypes.
So why not have a Hero one make 125 race? Completely open to standard or modified Hero 125’s?.
Hero have money to spend from selling X billion of their bikes in the local Indian market and as the East is ALL a developing market it will go to different levels quite quickly. But I would have not thought Ducati for the technology for street bikes. If Triumph can develop it’s own stuff for the 50.000 bikes they produce then Hero with a much bigger budget could buy what technology (or ideas) it wants off the shelf.
They could just build the clones they are best known for, whatever style of bike from whatever Manufacturer in the West is popular at the moment and that could be a big seller with the new middle class in India.
As I said in another post Indian conglomerate Tata turned round the fortunes of Jaguar and Landrover – two iconic English marques. So any thing is possible with money and vision.
kevin says
You’re right and wrong about Ford. True the X-Type and S-Type we’re mediocre but they weren’t intended to be the future of Jaguar under Ford.
The Jags you see today (XF, XK, XJ) we’re all penned and had the R&D completed under Ford ownership. I don’t know why Ford decided Lincoln would be a better global competitor than Jaguar. If I we’re a higher up in Dearborn I’d kick my own ass for that decision.
Hooligan says
Don’t forget the vast amounts of UK Government money thrown at Jaguar and Landrover as “sweeteners” for the deals.
As far as a car company making bikes? Only BMW seem to have made it work. But then their cars are no longer the standard for reliability and quality of construction.
kevin says
I’ve always thought Ford would be a good fit for EBR. They’re presently leveraged to their eyeballs but once they get some breathing room its a match that can work for both companies.
As for Ducati… how ’bout Mercedes or VW. Both companies have significant transportation holdings (car, truck, marine) and a marque like Ducati rounds out the stable nicely. Actually, I think they’d fit in more with VW considering the high performance marques already under their umbrella .
Generic1776 says
When Allan Mulally (who was not a “car guy”) took over Ford, he centralized the look/feel across the models, cut costs, focused on quality control and dropped the non-traditional vehicle brands. He even sold all but one corporate jet and mortgaged all company assets in order to have “cash on hand”.
His solution worked. He got Ford to survive 2008 and still continues to receive accolades for being one of the best CEO’s in the world.
He isn’t the kind of person to stop improving the business core and “go motorcycle racing”.
Generic1776 says
http://www.autoguide.com/auto-news/2012/03/audi-to-buy-ducati-deal-could-be-finalized-next-month.html
Audi to buy…?
sujay says
Indian bike market is just evolving now. It is mostly small 100cc bikes now there is some activity in the market. There are bikes with 250cc and above so with brands like DUCATI there is lot to learn about bikes (engines, tech, design etc). So it is a good sign for indian market as a whole.