Corporate strategiesProf. Paolo BoccardelliGroup 1:

The case: Harley Davidson-MV Agusta

Kimberly CatanzaritiCiro la GrottaDaniele NardellaVirginia ValentiGabriele BeccuLorenzo CoraggioLuigi Fierimonte

Video

In this slide will be a video made by a friend of us.

We have the video in our pendrive.

8/08/2008: HD acquired MVAG for €70M ($109M)

"The acquisition of MV Agusta Group will enhance Harley-Davidson, Inc's position as a global leader in fulfilling customer

dreams and providing extraordinary customer experiences.”

3/08/2010: HD divested MVAG for €1

“We believe that focusing our efforts only on the brand Harley-Davidson is the best solution to grow.”

The Facts

The Automotive Industry

The global motorcycle Industry

Is one of the world’s most important sectors by revenue. Was affected by the global financial crisis of 2008-2009. The main factor that had originated the weakness of the transportation industry was the

increase in prices of automotive fuels. The BCG predicts that by 2014, 1/3 of world demand will be in the 4 BRIC markets.

200 million units are in use, 58% in Asia where there are also the 4 largest markets: China, India, Indonesia and Vietnam.

2009: total revenue of $61,5 billion, representing a CAGR of 5.1%. Market consumption volumes with a CAGR of 5,6% between 2005-2009 to reach a total of

33.8 million units in 2009. The performance of the market is expected to accelerate with an anticipated CAGR of 6.7%

for the period 2009-2014.

The US motorcycle market has been in decline since 2008 and will probably by expected to continue to decrease through 2010;

In 2009 the motorcycle market had a total revenue of $8.1 billion, representing a CARC of -4.7% for the period which went from 2005 to 2009;

By the end of 2014, the market’s volume is estimated to increase to 645.1 thousand units, corresponding to a CAGR of 1.8%;

Motorcycle sales reached their highest volume in 2009, with total sales of 552.5 thousand units, equivalent to 93.8% of the market’s overall volume.

The US motorcycle Industry

The European motorcycle market had a total revenue of $12.5 billion in 2009; representing a CAGR of 1.5% for the 2005-2009 period in comparison to the German market which increased with a CAGR of 3.7% and to the UK market which declined with a CARC of -0.2% over the same period;

Market consumption volume decreased with a CARC of -1.6% between 2005-2009;

The market’s volume is expected to rise to 2.3 million units by the end of 2014; Motorcycle sales had the highest volume in the European market in 2009 ; The performance of the market is forecasted to accelerate, with a CAGR of 3.8%

between 2009-2014 and in particular the German and UK markets will grow with CAGRs of 0.3% and 1.6% respectively.

The European motorcycle Industry

Motorcycles vary considerably depending on the task for which they are designed, in facts, motorbikes producers, compete among different segments.

THE MAIN TYPES OF SEGMENTS:• standard street motorcycle• performance and street-fighters• Touring• Cruiser

SUB SEGMENTS:

• bobber• Chopper• custom motorcycle

HD and MVA producers are actually positioned on a “niche” market segment, MVA’s positioning is more on Performance and sport while HD is positioned more in a cruiser segment.

We identified the data about cruiser producers and their production and selling levels, with regard to number of (cruiser) motorcycles sold, then we arranged to obtain market shares in this segment.

We can observe that HD in this sector is the market leader, while in the general motorcycle sector

Honda is the main one

Market and Competitors Analysis

Market shares

Firm Country Share

HDMC, USA 34,80%

Honda, Japan 21,70%

Kawasaki, USA 13,60%

Suzuki, Japan 12,60%

Yamaha, Japan 10,00%

BMW, Germany 2,30%

Daelim, Korea 2,60%

Polaris, Britain 1,50%

Ducati, Italia 0,90%

Cruiser Segment Competitors Market Shares

General competitors of any motorbike producers are worldwide any motorbike producer.

we will go through the topic and we will start introducing better the concept of “cruiser motorbike”

BMW can be a threat for Harley-Davidson: in the cruiser segment (high quality and good services by paying high prices).

This Italian brand has been recently renewed produces cruiser motorbikes and could be a serious problem in some way for HD sales. In fact, is an historical Italian brand symbol of quality.

Other competitors

Harley competitors

Competitors

The SWOT Analysis

Harley has a STRONG MARKET POSITON, indeed is the Leading America manufacturer of heavyweight motorcycles

WIDE DISTRIBUTION NETWORK: 671 full service dealerships STRONG BRAND IMAGE, value in the house style- logo: customer community Harley provides a wide range of accessories and financial and insurance

services Harley’s robust cash flow: EFFICIENT COST MANAGEMENT

DECLINING FINANCIAL PERFORMANCE, bad general economic conditions due to the financial crisis: (wealer demand), revenues declined at a CARG of 12%.

POOR CREDIT RAITING, (credit rating agencies) more limited availability of funds from financial institustions and other lenders (affecting in particular retail consumers)

PENSION OBBLIGATIONS, the company provides retirement benefits to most of employees, therefore it has to make constant capital contributions

STRENGHTS

WEAKNESSES

STRENGHTS

GROWING INDIAN AUTOMOBILE MARKET, the Asia is the largest market and the SIAM, the Society of Indian Automobile Manufacturers has recorded a growth of 26,4% and this is expected to continue in the future

GROWING GLOBAL MOTORCYCLE MARKET, according to the predictions for 2013 an increase in the market value of 47,8%

REGULATORY COMPLIANCE, are required certifications by:

• the US EPA, Environmental Protection Agency to regulate emissions and noise standards, it leads to costs

• The US NHTSA, National Highway Traffic Safety Administartion

LABOR ISSUES, increase in the minimum wage and expiration of contacts, no certainty about future agreements

US government actions, termination of programs made up to help stabilize credit markets and financial institutions

OPPORTUNITIES

THREATS

Strategic Key Factors

Expand the market globally Adding another market segment:

the high performance bikes

NO synergies between the two firm

HD decided to make this investment without focusing on interdependencies and this is the main reason of the failure

We suggest to not buy MV Agusta!

HDMVA

BCG MATRIX

HD is our main product and deserve all the main efforts

Harvest / divestHarvest / divest

Harvest / divest

Selectivity

Selectivity

Selectivity

Selective growth

Selective growthInvestment and growth

Industry Attractiveness

McKinsey – GE MATRIX

After the two portfolio analysis it’s clear that HD shouldn’t have done this acquisition and made a good choice to divest MV Agusta.

We used three different methods to analyze the financial situation:

Ratio Analysis

Free Cash Flow Analysis

EVA Analysis

Financial Analysis

In the period 2007 - 2010, HD ratios show a sharp decrease in profitability. This reduction is due to the burst of the real estate bubble and the sub sequential financial crisis and in addition to the acquisition of MV Agusta.

In 2010, HD decided to sold MV Agusta and close Buell. The results of these divestments are easy to understand: HD passed from a variation of -56% to peak of 34% in ROI.

Ratio Analysis

2010 2009 2008 2007 2006 2005Revenues $ 4.176.627 $ 4.287.130 $ 5.594.307 $ 5.726.848 $ 5.800.686 $ 5.342.214

- Operating Costs $ -2.749.224 $ -2.900.934 $ -3.663.488 $ -3.612.748 $ -3.567.839 $ -3.301.715

= EBITDA $ 1.427.403 $ 1.386.196 $ 1.930.819 $ 2.114.100 $ 2.232.847 $ 2.040.499

- Depreciation&

Amortization

$ -255.171 $ -246.334 $ -222.191 $ -204.172 $ -213.769 $ -205.705

= EBIT $ 1.172.232 $ 1.139.862 $ 1.708.628 $ 1.909.928 $ 2.019.078 $ 1.834.794

- Taxes $ -439.412 $ -427.278 $ -640.481 $ -715.939 $ -756.854 $ -687.774

= NOPAT $ 732.820 $ 712.584 $ 1.068.147 $ 1.193.989 $ 1.262.224 $ 1.147.020

+ Depreciation&

Amortization

$ 255.171 $ 246.334 $ 222.191 $ 204.172 $ 213.769 $ 205.705

- CapEx $ -105.100

- ΔNWC $ 66.403 $ -88.702 $ -110.457 $ -83.356 $ -74.479 $ 31.133

= FCFO $ 1.054.394 $ 870.216 $ 1.074.781 $ 1.314.805 $ 1.401.514 $ 1.383.858

Free Cash Flow Analysis

As we can see, Harley Davidson lost about 49% of its value in the first situation while the decrease in value in the second one is about 29%.

PERIOD PV ΔPV Δ%HD Valuation 2005 - 2007 (ref 2008) $ 4.950.168 $ -

2.449.073

-49,475%

HD Valuation 2008 - 2010 (ref 2008) $ 2.501.095

HD Valuation 2005 - 2007 $ 4.514.939 $ -

1.298.349

-28,76%

HD Valuation 2008 - 2010 $ 3.216.591

We can notice a dramatic decrease in the EVA from 2007 before the acquisition of MV but, the lowest point reached is 2009 (the year after the operation).

By the end of 2010 we can observe again a positive EVA, signal that the divestment of MV Agusta has been a good decision.

EVA 2010 2009 2008 2007 2006 2005Economic

Value Added

$

670.801

$

650.564

$

1.006.128

$

1.131.970

$

1.200.205

$

1.085.000

ΔEVA $

20.236

$ -

355.563

$ -

125.842

$ -

68.235

$

115.205

$

93.379

Δ% 105,69% -182,55% -84,43% -159,23% 23,37% -31,09%

EVA Analysis

In the end, we can conclude that HD made a wrong operation that strongly influenced its profitability and its Value for the shareholders. So, why did HD Board approve the acquisition?

The reasons could be:

1. Wrong evaluations due to the fact that MV Agusta was not (and is not) a public company;

2. The possibility to acquire an healthy firm (given their reports) at a lower price;

3. The “manager hybris” of HD Board: they thought they have a good set of skills, knowledge and competencies useful to manage a difficult financial situation of MV;

4. A strict implementation of a wrong strategy.

Conclusions

Thank You