Report: Harley could have, should have sold Buell

[SuperHans]

Not exactly earth shattering, but I figured I'd throw it out there.

http://hellforleathermagazine.com/2010/03/report-harley-could-have-shoul.html

Writing in American Motorcycle Dealer, respected journalist Alan Cathcart reports on growing stockholder unrest following Harley management's decision to shutter rather than sell Buell. According to Cathcart, Bombardier made two separate offers to Harley after Buell's closure was announced, but both were declined seemingly for reasons of vanity. Now, HD stockholders have savvied to the fact that declining the offers cost the hemorrhaging doo-rag manufacturer $125 million in shutdown costs and potentially many times more due to negative publicity. Remember, Harley shut Buell without first calculating the costs.

Bombardier -- a Canadian company to which motorcycles are little but a side-line to massive aircraft and public transport operations -- owns both Can-Am and Rotax. Rotax makes the 72° v-twin that was used in both the Buell 1125CR and 1125R, Can-Am makes the utterly pointless, non-leaning Spyder trike that's also powered by a Rotax V-twin (the 60° one that was also used in the Aprilia RSV 1000 R). Seeking to protect a major outlet for Rotax engines, Bombardier initially offered to purchase the design and manufacturing rights and tooling to produce the two water-cooled Buell motorcycles. When that offer was refused, Bombardier then offered to acquire the entire Buell operation. While this would still have meant the end for the Harley-powered models, Cathcart says it could have seen Bombardier use Buell's existing East Troy, WI facility to produce not only the 1125s, but also that Can-Am Spyder; the bikes could have been re-badged under the Can-Am brand. The terms of both offers are unknown, but would have likely covered most, if not all of that $125 million, especially appealing when you consider Harley actually had to pay Bombardier a large sum of money to cancel its 10-year contract for the Rotax motors.

So why didn't Harley take the easy and less costly way out and make the sale to Bombardier? According to Cathcart, it was the risk of getting "considerable egg on their corporate faces" if the 1125s had found more market share simply by being marketed properly and placed in more appropriate dealerships. That's not going to sit well with stock holder calling for blood after larger than expected fourth quarter 2009 losses.

Harley has declined to comment on the potential sale of Buell many, many times, only saying, "We decided not to sell Buell because it is too inextricably tied to Harley-Davidson operations. Bottom line, we thoroughly explored it and decided it was not the option to pursue." We thank them for their good humor and patience in putting up with our constant hassling.  

[chornbe]

I can only assume that the costs involved had to do with parts supply and contractual obligations with Rotax.

Or they just plain didn't want to for internal/political reasons.

$.02

[Rincewind]

That's the first time I've seen a figure related to the shutdown.  $125 million in shutdown costs is pretty staggering.

[scottzilla]

Admist all the speculation, that's a pretty good article with some good information.

[nanbil]

Sounds like Harley was more afraid that somebody might actually make the Buell brand successful than they were about losing $125,000,000.00; wow no wonder they are in trouble.

[Tpoppa]

The $125 Million figure was to buy out the vendor contracts.  The Rotax contract was the biggest.

If HD would have GIVEN Buell to Bombardier, they could have saved that money, not to mention 200 AMERICAN jobs.

And no, a $125 million tax write off is not the same as saving $125 million.  

[BCRider13]

Admist all the speculation, that's a pretty good article with some good information.

Not really.  For such a respected journalist, Mr. Cathcart either needs to do some research or hire a different research assistant.  Bombardier Recreational Products (BRP) is not a division of Bombardier Inc. which is a large public company that makes among other things planes and trains.  BRP was sold by Bombardier Inc. in 2003 and it is owned by a private equity firm.  BRP has about half the sales of HD and it's been trying to restructure it's own debt for the past couple of years.  I seriously doubt BRP has the resources or borrowing power to purchase the Buell company, however it's not beyond reason to have made a bid for the engine that BRP's Rotax division made for Buell.

[kendenton]

Here, let me beat brad to the punch

[Brad1445]

The 1125 as built/designed/assembeled would sell with only one change, and that was half off the price tag.  There was nothing left to buy of the tattered Buell name.  We can read about all these offers but I have no doubt THEY WERE PENNIES ON THE DOLLAR. The brand hand stink all over it in the press and most importantly on the street.

Let the dead dog rest in peace.

I do find the story hard to believe as if rotax wanted to make a bike it could build its own with no luggage or preconceived issues.  A complete revamp of the 1125 would be close to starting from scratch. The four closest Harley stores in Colorado to me did a fine job of setting up floor space and  gave better customer service then the four big Japanese dealers I deal with. Its not the dog bowl, its the dog food no one wanted.

[Tpoppa]

The 1125 as built/designed/assembeled would sell with only one change, and that was half off the price tag.  There was nothing left to buy of the tattered Buell name.  We can read about all these offers but I have no doubt THEY WERE PENNIES ON THE DOLLAR. The brand hand stink all over it in the press and most importantly on the street.

Let the dead dog rest in peace.

I do find the story hard to believe as if rotax wanted to make a bike it could build its own with no luggage or preconceived issues.  A complete revamp of the 1125 would be close to starting from scratch. The four closest Harley stores in Colorado to me did a fine job of setting up floor space and  gave better customer service then the four big Japanese dealers I deal with. Its not the dog bowl, its the dog food no one wanted.

Your speculation is based on...well absolutely nothing.

But wouldn't you rather get pennies on the dollar than loose $125,000,000 of them?  

HD has manged to alienate sport bike riders more then they already were & pissed off share holders in the process.  Well Done

[chornbe]

On the upside, you can't BUY this kind of ongoing name dropping and publicity.  

[nanbil]

I don't know the particulars of the buy-out deal, but the article did suggest that... "Bombardier offered to acquire the entire Buell operation. While this would still have meant the end for the Harley-powered models, Cathcart says it could have seen Bombardier use Buell's existing East Troy, WI facility to produce not only the 1125s, but also that Can-Am Spyder" if this is true and Harley turned it down—if only to keep 200 plus people employed–then shame on them.  

[Brad1445]

I don't know the particulars of the buy-out deal, but the article did suggest that... "Bombardier offered to acquire the entire Buell operation. While this would still have meant the end for the Harley-powered models, Cathcart says it could have seen Bombardier use Buell's existing East Troy, WI facility to produce not only the 1125s, but also that Can-Am Spyder" if this is true and Harley turned it down—if only to keep 200 plus people employed–then shame on them.  

And if the offer was $200,000 it makes all this press and they never were close to a deal.  

Only vultures fly over dead bodies seeing an opportunity, and they don't pay for the meal.

[SalsaShark]

The four closest Harley stores in Colorado to me did a fine job of setting up floor space and  gave better customer service then the four big Japanese dealers I deal with. Its not the dog bowl, its the dog food no one wanted.

I try to stay out of these arguments because they go absolutely nowhere...

But I'm curious which HD dealers you thought did a good job. I can think of only High Country that had a quality sales approach to Buell. If it wasn't for the HD financing and HD insurance and... well HD, I would have bought mine there. Sun all but ignored me every time I went in to inquire about Buells, Rocky Mountain had a couple of bikes, but if you weren't covered in leather tassles, they ignored you as well.

So I'm wondering which Buell dealers you dealt with? I was apparently missing the quality dealers. I had a better sales experience over the phone having my Buell shipped from Uke's in Wisconsin then I ever did, in face, at the dealer.

Say all you want about pods and the like... but if everyone had the same experiences I had in HD dealerships, then it's no wonder the brand died on the vine.


Oh, and before it gets beaten to death (again), I like the pods... Beauty is in the eye of the beholder. Also, I had three people today compliment the bike when I was out and about. I just can't swallow that the "pods" killed an entire brand.


OK, back to our regularly scheduled beating of the dead horse...

[Schneegz]

Let the dead dog rest in peace...

... said Brad without a hint of irony.  

[ninegear]

god. this was a stupid move. HD is stupid as hell. they wont do anything with the company they destroyed and yet people are offering gobs of money for this. also i wonder what erik buell would think if HD wised up and sold it.

[Baz]

Not really.  For such a respected journalist, Mr. Cathcart either needs to do some research or hire a different research assistant.  Bombardier Recreational Products (BRP) is not a division of Bombardier Inc. which is a large public company that makes among other things planes and trains.  BRP was sold by Bombardier Inc. in 2003 and it is owned by a private equity firm.  BRP has about half the sales of HD and it's been trying to restructure it's own debt for the past couple of years.  I seriously doubt BRP has the resources or borrowing power to purchase the Buell company, however it's not beyond reason to have made a bid for the engine that BRP's Rotax division made for Buell.

If I can recall, that private equity firm you speak of is actually 100% owned by the Bombardier family. They purchased BRP when Bombardier decided to spin off the recreational products line, and the family did not want to see their pride & joy vanish.

There has been quite a fight brewing for years at Bombardier regarding the families majority voting rights with minority ownership of the company through preferred share ownership. (At least this was the case when I was a shareholder back around 2003)

The purchase of BRP from Bombardier was pretty much a hobby for the family. (Really rich people have hobbies too you know  )

Ford has the same problem. The family has controlling voting rights of the company, but does not own a controlling amount of the publicly traded shares.

While BRP may not look like they have funding available on their books, the family has access to piles of money, and in fact could probably raise enough cash for a leveraged buyout of Harley Davidson today if they wanted. (Rumour of a leveraged buyout of HD is circulating in the business headlines these days) http://dealbook.blogs.nytimes.com/2010/03/17/harley-davidson-rises-on-buyout-chatter/?partner=yahoofinance

I believe Brad hit it on the head........

And if the offer was $200,000 it makes all this press and they never were close to a deal.  

Only vultures fly over dead bodies seeing an opportunity, and they don't pay for the meal.

HD's CEO still claims that Buell was far too interconnected with HD to provide for the possibility of a sale, and short of a firesale price, who would really have wanted Buell? Obviously it has been bleeding red ink for years.   Sorry to say, but Buell just is not the worlds most desirable brand name. (You can of course put a lot of blame on HD for this)

[falconati]

The $125 Million figure was to buy out the vendor contracts.  The Rotax contract was the biggest.

If HD would have GIVEN Buell to Bombardier, they could have saved that money, not to mention 200 AMERICAN jobs.

And no, a $125 million tax write off is not the same as saving $125 million.  

[BCRider13]

If I can recall, that private equity firm you speak of is actually 100% owned by the Bombardier family. They purchased BRP when Bombardier decided to spin off the recreational products line, and the family did not want to see their pride & joy vanish.

There has been quite a fight brewing for years at Bombardier regarding the families majority voting rights with minority ownership of the company through preferred share ownership. (At least this was the case when I was a shareholder back around 2003)

The purchase of BRP from Bombardier was pretty much a hobby for the family. (Really rich people have hobbies too you know  )

Ford has the same problem. The family has controlling voting rights of the company, but does not own a controlling amount of the publicly traded shares.

While BRP may not look like they have funding available on their books, the family has access to piles of money, and in fact could probably raise enough cash for a leveraged buyout of Harley Davidson today if they wanted.

Yes the Bombardier family has a financial interest in BRP as they put up 35% of the cash.  Bain Capital out of Boston put up 50% and a pension fund in Quebec the remaining 15%.  The bulk of the purchase was cash which Bombardier Inc. required.

The Bombardier family does have a strong presence on the Board of Directors of BRP.

Within the past year BRP has cut almost 1,000 jobs from it's work force and cut production by 20% to account for the current economy.  The company has also been trying to repurchase a large amount of it's term debt at a discount which caused S&P to lower it's credit rating which was already below investment grade.

My point is that all of this is based on a rumor out of Austria with no corroboration what so ever.  It makes sense for BRP to want the engine because it could be used in it's own products (the Spyer could use more power) or be marketed to another motorcycle company.  It doesn't make sense to purchase the whole of Buell as I doubt BRP has any interest in the air cooled thunderstorm engine or any of the bikes Buell already sold.  In the long run it would be less expensive for BRP to design and produce it's own motorcycle line without all the baggage that Buell would bring with it.

[Rogue]

The $125 Million figure was to buy out the vendor contracts.  The Rotax contract was the biggest.

If HD would have GIVEN Buell to Bombardier, they could have saved that money, not to mention 200 AMERICAN jobs.

And no, a $125 million tax write off is not the same as saving $125 million.  

Well said.  

200 American jobs is only good if they are building H-D motorcycles per H-D's management.  If they are building sportbikes, cut them loose!  What's $125 Million worth just to save face anyways?