Harley-Davidson considers selling parts of its financial division
Harley-Davidson is apparently about to make a far-reaching decision. According to a recent report by Bloomberg the company is in talks about the sale of a stake in its in-house financing unit Harley-Davidson Financial Services (HDFS). There is talk of a transaction volume of around 5 billion US dollars.
Talks with PIMCO and KKR ongoing
According to Bloomberg, two big names from the financial world are at the center of the negotiations - the investment firm KKR & Co. and the asset manager PIMCO. Goal is to sell part of HDFS and an extensive motorcycle loan portfolio. The talks are already at an advanced stage, but an agreement is not yet certain.
The investment could not only free up capital, but also open up strategic scope for Harley-Davidson - for example for investments in new business areas or for further restructuring of the Group.
Background and possible effects
HDFS is a central component of the Harley-Davidson business model. Many bikes are leased or financed via the company's own financing unit. A partial sale would mean parting with at least some of the control here - presumably in order to outsource risks and generate short-term capital at the same time.
Bloomberg had already reported in the spring that such a move was being examined. At the time, there was talk of a valuation of around USD 1 billion. The volume now being discussed shows that significantly larger packages are in play. It is also clear that the sale could have a signal effect on the company's share price in the coming years.
Share price reacts to the announcement
At the New York Stock exchange Harley-Davidson's share price (NYSE: HOG) fell by more than 4 percent at the start of the week. Investors appear to be cautious - which is hardly surprising given the size of the potential deal. Questions about the future stability of HDFS and margin development are also likely to play a role.
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Wolf's comment
When you sell one of your strongest divisions, the question is not just how much money you will make in the short term. The real question is what is left over in the long term - and what do you lose?
HDFS was a kind of internal engine for Harley-Davidson for years. Sales came in regularly, relatively stable and easy to calculate. Anyone who finances a bike today often does so directly through Harley-Davidson - this creates customer loyalty and margins that other manufacturers are envious of.
So now the potential sale. Sure, 5 billion sounds like a big deal at first. But how much will be left over after taxes, transaction costs and debt reduction? And above all - what do you do with the money? Is it really being invested in the future? Or will it just be used to polish balance sheet figures?
For me, the risk is that this deal takes away an important pillar. It sounds a bit like „selling the house to get the Car to refuel“. Maybe it's a good deal on paper. But Harley not only has to answer a question of numbers, but also a question of confidence.
The deal does not come without questions
The timing is striking. Jochen Zeitz will be leaving the company this year. And right now, a deal worth billions is in the offing for Harley-Davidson's financial business. For him personally, that would be a clean break.
And there is something else. It cannot be ruled out that Zeitz will benefit directly through bonus arrangements or share packages. Many CEO contracts are linked to certain targets. If the sale goes through and the Share price reacts positively to this, it will also become financially interesting for him. RSUs - i.e. blocked share packages - could increase in value as a result. And bonus payments are often linked to such deals, even if they are only paid out after the official departure.
So you have to ask yourself whether this deal, if it goes through, is really in the interests of the company. Or whether it will primarily provide a golden frame for the departure of a CEO.
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