RUMOR: Harley Davidson and Ducati Merger?
Friday, June 22nd, 2007 at 12:29 pm by angrybob
Say it isn’t so. Please. Pretty please. Pretty please with synthetic 5W40 on top. Someone tell me this is all a sick joke!
Ducati would consider Harley-Davidson merger ‘anytime,’ CFO says
By Heather West in New YorkPublished: June 12 2007 06:44 | Last updated: June 12 2007 06:44
Ducati Motor Holding, the listed Italian motorcycle manufacturer, would consider a merger with US-based Harley-Davidson “anytime”, said Enrico D’Onofrio, CFO.
A merger with Harley-Davidson would be “totally complementary”, he said, responding to speculation in the market that the two firms had been in talks. And while he declined to comment on the speculation, he did say that the two companies are similar in that they create recreational bikes that consumers fantasize about. “People want to buy a dream.” Harley-Davidson has an older consumer profile, with an average age of 55, while Ducati owners are about 35, on average. Half of all Ducati owners in the US also own a Harley, D’Onofrio added.
A potential combination with the US company could also help Ducati with procurement, as Harley is a larger company that is able to get better quality products at lower prices. A marriage would also increase distribution opportunities for Ducati, which is a relatively small manufacturer. “In the US, we do not have critical mass,” D’Onofrio said. “In this market, you must.”
D’Onofrio said Harley could also stand to benefit, as it could be interested in expanding internationally. “The US market is flattening,” D’Onofrio said.
Asked if Harley-Davidson has ever visited Ducati’s factory in Bologna, the executive said: “Yes, we are good friends.” He said Harley visited as recently as two months ago.
Still, D’Onofrio acknowledged that some at the top of the company believe a combination with another company could dilute the Ducati brand, which dates back to the 1920s. But D’Onofrio said it is his opinion that the company could maintain its strong brand identity, even in the case of a strategic buyout.
Ducati faced difficult times in 2005 and 2006, but now has a new shareholder and is focused on reducing fixed costs and increasing margins. The company has decided to limit the number of its entry bikes, and focus on its higher-end and higher-margin motorcycles, D’Onofrio said.
Texas Pacific Group sold its 30% minus one share stake in Ducati in March 2006, after holding it from 1996, to Investindustrial, an Italian private equity firm. The company has also changed its R&D structure, focusing more on racing, and has brought in a former Toyota executive to oversee quality, D’Onofrio said.
The executive estimates that Ducati will be ready to consider a “marriage” in about one- to- three years, or once it meets its goals promised to shareholders. D’Onofrio said Ducati aims to reach EBITDA of greater than 14% and to sell 50,000 bikes per year by the end of 2008. The company is currently at about 15% EBITDA, and sold 32,000 bikes in 2006.
Also as a result of its restructuring, Ducati has reduced its debt to about 30%, and could therefore also consider acquisitions, D’Onofrio said. Ducati once considered a purchase of Moto Guzzi, which has since been acquired by Piaggio. Husqvarna could also be a potential fit, but is likely to be acquired by BMW, and is therefore not really on the market, D’Onofrio said.
He also downplayed the likelihood of another private equity buyout, explaining that after the involvement of TPG and Investindustrial, Ducati now needs to focus on its strategic outlook. “I truly think we need to find an industrial alliance,” he said.
“It’s clear the market is consolidating. The Japanese own more than 80% of the market,” D’Onofrio noted. He cited speculation regarding a Piaggio and Harley-Davidson tie-up, as well as a Piaggio and Ducati combination, which he said could both be logical scenarios. But for Ducati, D’Onofrio said: “If you ask me, the best scenario is Harley.”
Ducati has longstanding relationships with both Unicredit and Mediobanca, but D’Onofrio said Mediobanca knows the company best. Ducati is not seeking advisors in the US, but has worked with Merrill Lynch and Morgan Stanley in the past for private placements.
The US and Italy each generate about 25% of Ducati sales, while Germany, UK, France, Japan and the rest of the world bring in 10% each, D’Onofrio said. Investindustrial, BS Investimenti and HOPP together own about 30% of Ducati.
Ducati trades at approximately 10x EBITDA and has a market capitalization of EUR 476m (USD 640m).
Over the years, as an Aprilia owner, I have grown to like Italian engineering. It’s sexy, its cutting edge, and its overall reliable. These are the things for which Harley struggles. I know, I know…I read the case studies in grad school, they are a different company than they were in the 80’s. They now make money on sales of t-shirts and souveniers versus motorcycles, so they definitely are a different company.
Structurally, it actually makes a lot of sense. A compant that has the dominate cruiser coupled with a company that has a dominate superrbike - both of which command premium prices. There is very little overlap in products and demographics. In fact, HD’s premium showrooms would benefit from having ‘upper class’ Ducatis present.
I am partial to Ducati though. Please don’t tell any of my Aprilia forum brethren otherwise I will be shunned. But the 916/996/998 models are the sexiest bike I have seen for production. And while Harley make good looking cruisers, their little sister Mrs. Buell does not. There is the overlap - excess waste call it. It’s likely that Buell could function all on its own given their decent sales. Should this merger happen, I would expect Buell to be fully spun off as a separate company.
What happens when you mix the Ducati crowd with the HD crowd? Well, I think its already happened (read again the bold type above). From the business side, it looks pretty sound. From the enthusiast side ARE YOU GUYS INSANE???
Be afraid, be very afraid.
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Just to show that truth is stranger than fiction: When Aprilia was in financial difficulties in 2004/2005 I joked over at apriliaforum.com that Aprilia would be sold to Harley and the next Mille RSV would have a V-Rod engine in it. I was accused of having a truly sick sense of humor (which I do).
That Ducati would entertain a merger with H-D is an even more bizzare thought. But then who thought that Lamborghini or Bentley would prosper under the ownership of Volkswagen? Next thing you know MV Agusta will be sold to the Malaysians who will sell it back to the Italians for $1.70.
Doug