Harley-Davidson has announced that Warren Buffett’s Berkshire Hathaway group will invest $300 million in the motorcycle maker through a purchasee of senior unsecured notes that will mature in 2014. These funds match a similar investment by Davis Selected Advisers, L.P., which is already the largest shareholder of the company’s stock. Harley-Davidson will use the money to bolster its lending services, hopefully making it easier for the troubled motorcycle maker to lend cash to consumers. In exchange, Berkshire Hathaway will reportedly receive a lucrative 15% annual interest rate on the cash infusion.
The markets have responded to the news rather favorably, with Harley shares hitting $13.56 in trading yesterday afternoon – a 14% increase from where they started yesterday. Just about a week ago, Harley-Davidson announced a plan to shed 10% of its workforce. This move marks the first time that Buffett has ever invested in the company.
Lately, Buffett has been arranging private deals with some of the most recognizable U.S. brands and taking advantage of rising interest rates as the global credit crunch drives off his competitors. He committed $6.5 billion in April to help Mars Inc. buy chewing gum maker Wm. Wrigley Jr. Co., and $8 billion on preferred shares in General Electric Co. and Goldman Sachs Group Inc.
We find this news to be pretty interesting, considering last June Harley bought MV Agusta for the tune of $100MM, when MV had about $200MM-$250MM of debt on the books. Some quick mental math on that, and we realize that’s the same amount of money Berkshire is investing into Harley. It would look like the MV purchase wasn’t as good of a strategic move as it was previously thought. A&R will be meeting with Mr. Buffett in the next two days, and will have the opportunity to ask him his thoughts on the HD/MV deal, and what it means for Harley in the credit crunch. More on that when we have it.
Full Disclosure: The author of this article has a financial interest in the Berkshire Hathaway company.