Social Media

Jul. 21, 2008 – Harley strengthens European presence

July 21, 2008
Filed under Features

OEM announces plan to buy Italian OEM MV Agusta Group

Harley-Davidson has announced plans to purchase an Italian motorcycle maker that will increase the Milwaukee manufacturer’s presence in the second-largest heavyweight motorcycle market in the world.
The impending acquisition of the MV Agusta Group gives Harley-Davidson a premium, iconic sport bike line in Europe, which is predominantly a performance retail market.
Harley announced its plan to fully purchase the MV Agusta and Cagiva brands for 70 million Euro ($109 million) on July 11. Part of the agreement also entails providing a contingency payment to Claudio Castiglioni in 2016 if certain financial targets are met. The Castiglioni family owns 95 percent of the current company’s shares.
The acquisition includes three MV Agusta facilities, including its headquarters in Italy, where manufacturing of the two motorcycle brands will continue.
The purchase, which gives Harley-Davidson a stronger foothold in Europe, seemingly will have little impact on the North American market. The MV Agusta Group sold just 5 percent of the 5,000-plus motorcycles they manufactured in 2007 in the United States, said Tom Bergmann, executive vice president and CFO for Harley-Davidson.
“The acquisition provides the opportunity to deepen our penetration into performance motorcycles, which represent more than 70 percent of the European market,” Bergmann said in a conference call from Milan, Italy, on the day the planned acquisition was announced.
Bergmann made it clear Harley-Davidson will focus first on increasing the MV Agusta brands’ presence in the European market before looking toward other markets, including the United States. Recent financial struggles by the current MV Agusta Group ownership have limited manufacturing for the Italian company’s brands this year.
“Over time, I expect there will be additional opportunities to grow these brands outside of the European marketplace,” Bergmann said, “but the plan is really to focus on the existing dealer network that they have, with almost 500 dealers worldwide.”
Harley-Davidson has taken a more aggressive approach with its international markets as its overseas sales have risen sharply over the past couple of years. Europe is one such example, where its retail sales have expanded in double-digit percentage growth each of the past three years.
In the first quarter alone, Harley sold more than 9,000 bikes in Europe, a more than 30 percent increase over the same period two years ago.
At least initially, the planned acquisition likely won’t have a huge impact on Harley-Davidson’s market share in Europe. The MV Agusta Group shipped approximately 4,400 MV Agusta motorcycles and 1,300 Cagiva motorcycles last year. More than 80 percent of those were sold in Europe.
Because of the financial difficulties, that production has been cut back this year. Bergmann would not specify the extent of the production cutback but said there is a “minimum” level of production occurring now. Harley-Davidson hopes to increase that level of production by the end of the year.
“We will leverage our expertise to re-establish the supply chain and reinsure the riding community, dealers and employees that the MV Agusta Group has a long-term strategic and financially strong owner,” Bergmann said.
Bergmann also said at this point there are no plans to bring production of the MV Agusta bikes to Harley’s U.S. facilities.
Perhaps because of the immediate challenges with production, Harley-Davidson said the planned acquisition is not expected to have any impact on earnings per share or cash flow for this year or next.
Bergmann noted while the privately held MV Agusta Group has had financial challenges in continuing production they have continued to invest in product development.
“We are excited about some of the pipeline of product that they have started on,” he said without specifying the type of product.
“I do expect (Harley-Davidson) to make financial and capital investment over the next few years to continue to grow the product pipeline as well as to increase manufacturing capacity.”
Bergmann also noted that he does not expect the Buell and MV Agusta sport bike lines to compete against each other, saying he believes “these two brands are very complimentary and play in very different spaces. They obviously are both performance brands but they have a lot of differences and are different in their appeal.”

Comments

Feel free to leave a comment...
and oh, if you want a pic to show with your comment, go get a gravatar!