H-D Purchase of MV a Hot Topic

Harley-Davidson’s plan to purchase Italian motorcycle manufacturer MV Agusta Group for €70 million ($109 million) has been a hot topic at industry water coolers.

Will H-D set up a large network of dealers across the country with MV product? How does the Motor Company plan to integrate MV with the H-D and Buell brands? What will happen to Cagiva USA, the Willow Grove, Penn.-based importer and distributor of MV Agusta motorcycles?

So far the Motor Company’s not saying. However, Harley-Davidson, Inc. CEO Jim Ziemer, in announcing the purchase plan July 11, said the acquisition is intended primarily to help expand Harley-Davidson, Inc.’s presence and footprint in Europe, complementing the Harley-Davidson and Buell motorcycle families.

Harley-Davidson has been seeking increased international sales to make up for a slowdown in the domestic market, and retail sales of Harley-Davidson motorcycles in Europe have grown at a double-digit rate in each of the last three years.

The Milwaukee-based manufacturer also is pressing for entry to India, opened its first dealership in East China last Nov. 3, launched its first dealership in Taiwan in April, and created a subsidiary office in South Africa in May.

First quarter retail sales of Harley-Davidson motorcycles in the U.S. decreased 12.8 percent compared to the same three months in 2007. In international markets, H-D retail sales increased 16.8 percent during the period.

Besides, it’s not like H-D could sell a ton of MV in the United States. MV’s 500 dealers worldwide moved about 5,819 motorcycles last year, only a small fraction of which were retailed from the brand’s 40-some dealerships in the U.S.

MV has had a tumultuous corporate track record recently.

Relaunched in 1997 following 17 years as a shuttered brand, the MV Agusta Group entered the new millennium in serious financial difficulties and, by 2002, was trying to escape court-ordered temporary receivership proceedings.

In October 2004, MV Agusta CEO Claudio Castiglioni struck a deal with Malaysia’s Proton Holdings Bhd to have the Malaysian firm underwrite a €70 million loan. The deal allowed MV Agusta to meet all of its outstanding debts with banks and suppliers and return to capital and asset liquidity before a Dec. 31 deadline set by lenders.

Proton became MV Agusta’s majority shareholder and appointed a managing director. Castiglioni remained as company CEO.

“The return to better fortunes of MV Agusta is due to a series of factors that have concretely come together to bring about this extraordinary result,” Castiglioni said following the Proton bailout in 2004. “I therefore wish to express particular thanks to the banking system in general, and to Banca Intesa in particular, for all their help and advice. It is thanks to them that the company is still a going concern. Nor let us not forget Proton, who have believed in the value and potentials of our brands, and with whom we will construct a leading force to be reckoned with on an international level.” However, just one year later, in December 2005, Proton announced plans to sell its 57.8 percent stake in MV Agusta to Italian investment company Gevi SpA for one Euro plus MV Agusta’s $126.8 million debt and $38.5 million working capital requirements. Proton leadership changed during the year, and new corporate directors said they no longer wanted to fund an operation with what appeared to be a growing debt load.

Now once again privately held, with the Castiglioni family owning 95 percent of MV Agusta shares, the Italian firm has again, according to Harley-Davidson, “significantly slowed production in 2008 due to financial difficulties.”

Castiglioni can’t be faulted for trying to make a go of it. In June 2007, in an effort to collect some funds, MV Agusta Group sold its Husqvarna brand to BMW. Castiglioni, at the time, said the sale of Husqvarna would serve as “a strategic step to concentrate all of (the company’s) resources in the development of MV Agusta and Cagiva brands.”
It appears more financial assistance was needed.

H-D’s proposed purchase price of €70 million for MV includes payment of €45 million ($70 million) in existing bank debt and provides for a contingent payment to Castiglioni in 2016 if certain financial targets are met.

H-D plans to continue to operate MV Agusta Group from MV’s headquarters based in Varese, Italy (incidentally very near BMW?s Husqvarna operations). The Motor Company says the first priority will be to appoint a leadership team to include a new managing director and to resume the manufacture of current models. Castiglioni will continue in a leadership role as chairman and will play a major role in future product development. Design chief Massimo Tamburini will continue his leadership of MV Agusta Group’s design studio.

H-D’s acquisition of MV is expected to close in several weeks, pending the satisfaction of contingencies and receipt of regulatory approvals. H-D intends to fund the transaction primarily through euro-denominated debt.