American Motorcycle Dealer AMD 181 August 2014 | Page 4

Headlines are a potent return on investment for
Wall Street's mergers and acquisitions vultures
S this edition of AMD went to press, in advance of the
unveiling of the 2015 Harleys, speculation was flying around
the internet (that well known place where facts go to die)
that the 2015 Harley model range will see a return for the
Road Glide.
Rather surprisingly dropped for this year, spy-shots scooped by certain online media
outlets appear to suggest that the brand has been given the "Rushmore" treatment
and other context-sensitive upgrades - not least integrated hard bags and frame
mounted fairing. Further speculation suggests that the twin-cooled Twin Cam will
migrate to base model level on the 'new' Road Glide.
I am also writing this month's column just days before Harley's 2014 second quarter
and first half year-to-date fiscals were unveiled. Currently stock market advisories are
being kind to the Motor Company, so the expectation is of another
modest, sequential step back towards pre-recession unit numbers
and earnings.
However, some of the feedback I have had to my May piece
("Harley-Davidson could be vulnerable to the vultures"), also
written just before Harley released numbers, their first quarter
numbers, has been interesting.
They have varied from the "to all intents and purposes Harley
is already owned by speculators," right through to "Harley would
never let that happen."
In point of fact it may well be that Harley's race away from the
bottom and the measures it embraced to get its earnings and balance sheet back in
order suggest that making ready for a takeover, hostile or otherwise, may well have
been part of the game-plan.
For those whose management contracts and investment advice are incentivized to
benefit from a scrabble for shares, the short-term hurt for short-term gain school of
management is exactly the one that is commonly deployed by corporations preparing
themselves for acquisition.
We have already been seeing the sharks of mergers and acquisitions sector feasting
on tasty morsels (in the scheme of things), and as the recovery deepens, the next stage
of the cycle sees circling for tasty treats morph into the audacious - the kind of eatall-you-can feeding frenzy that makes rock-stars out of the suits, the kind that makes
their tribe purr in admiration, the kind that sets agendas and makes reputations.
As deals go, forcing Harley to the block would indeed be a headline grabber - just
look at the mainstream reaction to the news about the 'LiveWire' going live. Sure, it
was a slow news week, but nonetheless Harley coming into M&A play would indeed
be news, and often that is the limit of the pay-off needed for venture-vultures to justify
getting it raised up the flagpole.
Selling metal and delivering dividends aren't the only way for investors to make a

A

buck - ROI only depends on stock price movement, not value. One often hears socalled analysts talking about this or that stock looking like it has "value" - in their
context all that means is headroom, headroom in the context of the capital concerned,
regardless of the realities of the business concerned.
Stock analysts and venture capitalists analyze "value" in the context of balance
sheet math and investor sentiment, not in the context of list price per BHP or handling
in the turn on a wet road.
To the vultures it matters not a jot that Harley-Davidson makes motorcycles, all that
concerns them is that they can make a defined turn on the cash they use to buy stock
within a defined time frame.
Where investment capital is concerned time really is money, and timing is the inexact
science that divides the hero from the zero. The competitive pressure on an investment
in a motorcycle manufacturer is much more likely to be coming from
the projected ROI timeline in alternate investments in
pharmaceuticals, aerospace or construction than from the competitive
pressures being exerted by a rival motorcycle manufacturer.
On the day I wrote this, Harley’s stock price had been bouncing
between $66.03 and $66.75, that's around a one percent variance
on a pretty typical, average trading volume - meaning that at the time
of writing it was pretty stable. For the prior 52 weeks though it had
bounced between a low of $54.83 and a high $74.13 - that's a
variance of around 25 percent - is that stable?
In mergers and acquisition terms Harley's market capitalization of
$14.55 bn puts right bang in the middle of the M&A cross-hairs at this time - right in
the "Goldilocks" zone ... neither tasty morsel nor eat-all-you can.
The high point for Harley's stock in the past twelve months came around the end
of April, after its steady climb from an August 2013 low had been interrupted by some
first quarter turbule