Harley Stock Fever Cools

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Who is Kohlberg Kravis Roberts & Co. (KKR)?

Investors continued to trade Harley-Davidson (NYSE: HOG) stock in heavier volume than normal on St. Patrick’s Day, but the activity was down sharply from Tuesday’s very heavy activity.

HOG shares were off .17 Tuesday from Wednesday’s close of 28.35 on volume of 4,4558,600 shares, down from Wednesday’s huge volume of 18.4 million. Average daily trading volume over the last three months is 3.6 million shares.

Tuesday’s heavy trading pushed the stock up 1.85 or 7%, but it failed to break the 52-week high of 30.00. The 52-week low is 11.20.

Today’s mid-day trading was in the 28.40 range.

The feeding frenzy was started by rumors that Harley was going to be purchased by Kohlberg Kravis Roberts & Co. (KKR), a huge New York-based private equity firm that specializes in leveraged buyouts (LBO). The international firm, founded in 1976, has more than $50 billion under management and reports it has completed more than $400 billion worth of LBOs.

KKR isn’t a fly-by-night operation; it’s a player. One industry analyst I contacted called KKR “the real deal in the LBO world.” KKR has put together some of the largest LBOs in U.S. history, including the $31 billion RJR Nabisco deal in 1989 and most recently, in 2007, it completed the $48.4 billion deal for Energy Future Holdings, now the largest buyout in U.S. history.

There’s no question that KKR could put together a deal for Harley if it chooses to do so, but there’s no solid information that such a move is in the offing. At least one leading industry observer, Tim Conder, an analyst with Wells Fargo Securities, doesn’t think such a deal is likely, as I reported previously. He didn’t rule out some type of joint venture involving Harley’s finance unit, however.

Neither Harley nor KKR would comment on the rumors.

It’s interesting that Harley is being guided by a new executive team headed by Keith Wandell, president and CEO, who took over last May. He was formerly president and CEO of Johnson Controls, Inc., a global manufacturer of automotive and building equipment.

Wandell has been described by Harley and others as an experienced executive with strong international and manufacturing credentials, but he has not been presented by Harley as a hard core rider or motorcycle enthusiast.

So, it wouldn’t be surprising to see Wandell make a buyout decision based strictly on financial considerations with little regard for the traditions of Harley and its customer base. There’s no indication that’s what he’s thinking, though, and even if he is, it’s not necessarily a bad thing for Harley investors. It’s just an observation.

An LBO isn’t a sure thing and often they fail. A leverage buyout is just what it’s called, a buyout that’s highly leveraged. It uses borrowed funds to make the purchase, pledging the company’s assets as collateral and expecting to pay back the loans out of the company’s cash flow.

It’s not unusual for an LBO to end up in bankruptcy if the cash flow isn’t sufficient to handle the heavy new debt load. JD

Contact me with story ideas and news tips at 952/893-6876 or jdelmont@dealernews.com


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One Response to “Harley Stock Fever Cools”

  1. The Top Ten Custom Motorcycle Builders Says:

    […] Harley Stock Fever Cools « Dealernews Blog […]

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