After Asphalt & Rubber broke the news about the MV Agusta purchase last week, many of the details about Harley-Davidson’s sale of MV Agusta to the Castiglioni were known or rumored at the time of the purchase’s announcement later in the day; however the exact figures and terms of the agreement were not officially known. Having filed the appropriate forms with the SEC, Harley-Davidson (a publicly traded company) has had to disclose the terms of MV Agusta’s sale, which don’t paint a favorable picture for the Milwaukee brand, but show how Castiglioni “bought” his company back despite bids coming from other parties.
As we reported earlier, Castiglioni purchased MV Agusta for the nominal sale price of €1, but digging into the terms of the agreement, it’s Harley-Davidson who is really paying out the big dollar amounts. In their agreement Harley-Davidson agrees to leave MV Agusta with a dowry of roughly €20 million (+/- minus fees and profits incurred), with €7 million of that cash infusion coming up-front. The rest of the sum will be paid in escrow with equal monthly installments, over a 12 month period starting on August 20th, 2010.
In exchange for this cash, Castiglioni has agreed to waive any earn-out payments he would have received as a minority shareholder in MV Agusta. Owning 5% of MV Agusta before the sale, we can only guess as to how much this payout potentially would have been, but we do know from the sale agreement that Harley-Davidson agreed to pay for the earn-outs of Enrico D’Onofrio (Harley-Davidson appointed Managing Director of MV Agusta) & Eugene Guizzetti (MV Agusta Executive).
Harley-Davidson also agreed to pick up most of the tab on the costs and fees associated with the sale of MV Agusta, most of which do not apply to the €20 million sum Harley-Davidson agreed to pay. In exchange Castiglioni agreed to not take any dividends or unusually large payments out of MV Agusta, meaning the funds given to the company should remain for company use. Castiglioni also agreed to absolve Harley-Davidson of any legal proceedings and liability the Italian businessman had been pursuing related to the sale of MV Agusta, which left unresolved would have tied up the purchase of MV Agusta for years.
The lawsuit filed in Italian courts by Castiglioni is certainly the linchpin in this purchase agreement, as any lengthy legal proceeding would have cost Harley-Davidson considerably, regardless of the final judgment. As Harley-Davidson paid out its lawyers, the opportunity for any profit in the sale would have dwindled over the course of the legal battle, which also would have confounded Harley-Davidson, Inc.’s desire to hurriedly divest MV Agusta from its holdings. Knowing that Harley-Davidson was in-between a rock and hard place, Castiglioni seemingly has exploited his position with MV Agusta, and as we see in the terms of the sale, the Italian businessman was able to get considerable concessions out of Harley-Davidson.
In total Harley-Davidson has written off $162.7 million (net in taxes) in its two year ownership of MV Agusta, making this an expensive outing for the American company in the Italian premium sport bike market. However this failed experiment in motorcycling accounts for only roughly 69¢ per share of Harley-Davidson stock, or roughly 2% of the stock’s current market price (which is how much the stock dropped during the announcement of the divesture).
With MV Agusta now back in Italian hands, all eyes will be on Castiglioni and his new CEO Massimo Brodi to see how they turn the company around.