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Ducati would consider Harley-Davidson merger 'anytime,' CFO says

By Heather West in New York


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).

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...I hear lotsa HD owners also own BMW bikes

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Harley really needs help in the design department, although I'd hate to see duc degraded like that.

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Sometimes I find it quite challenging talking with people who have no clue what is going on around them. And they suggest I "look at the bigger picture".

Harley sales are down, and so is their stock in a time when the stock market has been on fire. Note a 6 month chart below. Another thing - classifying "sportbikes" doesn't equate when all the manufacturers make various model bikes and we are talking about a MERGER in this thread. Maybe visit a GED program or such and perhaps as a result we can better communicate in threads addressing mergers and acquisitions.

Maybe if Harley would get with the times their competitors will quit taking market share huh!? There's your "bigger picture".

Ticker HOG (not "HD" Home Depot as you mention above) sluggish per the 6 month slide below:

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wow, such vulgarity.... why not keep that in the smackhouse...and this thread was about a merger why do you keep bring specific models of bikes...oh- but its obvious you can' talk business huh

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