Fresh off of the news from two days ago, where the Harley-Davidson Board of Directors settled the power-grab by investment group Impala Asset Management, we now see the first fruits of that agreement taking shape.
Taking decisive measures, fueled by the fallout from the coronavirus epidemic, the Harley-Davidson Board of Directors held an emergency voting session on Tuesday night, which saw the group lay out a massive restructuring plan the Bar & Shield brand.
According to a press release, the reasons given for the corporate restructuring were three-fold: 1) the new company positioning would allow Harley-Davidson to scale its business to the economic times currently facing the motorcycle industry; 2) it would take the Bar & Shield brand into new business segments that have higher profit margins and better market outlooks; and 3) it would better position the Harley-Davidson name to younger buyers, namely millennials.
While the restructuring still need to be approved by the US Securities and Exchange Commission (SEC), no one in the business community is sensing pushback by the Trump administration, which has shown favorable signals to similar deals in the past.
“When you look at the balance sheet, the financial situation of Harley-Davidson becomes quite clear,” said interim-CEO Jochen Zeitz on a call to investors. “Once we realized the situation for what it was, the course of action to ‘right the ship’ was quite obvious to us and the shareholders at Impala.”
The restructuring plan was the work of consultancy group Booze Alan Hamilton, which highlighted to the Board of Directors that Harley-Davidson is on course to make more money from its financing operations than the actual production of motorcycles.
Accordingly, Harley-Davidson will be broken into two separate corporate structures, each listed on the New York Stock Exchange.
The Harley-Davidson Motor Company will remain as its current corporate entity, continue trading on the NYSE as HOG. The company will also continue to be responsible for the brand’s motorcycle-related operations.
However, a new corporation will be spun out of the Harley-Davidson business family: Harley-Davidson Owners Excelsior. Set to be also listed on the NYSE, current HOG stock shareholders will get a 2:1 stock transfer package into the new HOE listing, when it goes onto the exchange, June 15, 2020.
“The goal for the corporate restructuring is to take the business units that are dragging down Harley-Davidson’s balance sheet, and move them away from the business units that are quite profitable,” said Marty McMartinson, Research Lead at Booze Alan Hamilton, during the shareholder conference call.
“Our research revealed that for half of the financial year, Harley-Davidson’s financial and licensing business units generate more income than the company’s manufacturing business operations.”
“Further, our research shows that the financing and licensing numbers have been more resilient during economic trouble, while the motorcycle unit volume sales just continue to sink.”
Overall, the restructuring of Harley-Davidson seems like a pivot for shareholders, and allows them to take their invested money and focus it on the business operations that not only make Harley-Davidson money, but also show strong potential for future growth.
Accordingly, Harley-Davidson Owners Excelsior (HOE) will establish its own brick-and-mortar credit union operations, with the focus on building the credit union with long-time Harley-Davidson buyers as its initial creditees.
Harley-Davidson Owners Excelsior will also create dedicated Harley-Davidson boutique stores so as to continue the brand’s apparel operations, with an eye on expansion and putting installations in high-end shopping centers – copying the Apple store model.
Rumors already suggest that interim Harley-Davidson CEO Jochen Zeitz has tapped his past colleagues at Puma for helping Harley-Davidson turbocharge its apparel offerings for these stores.
“If there is anything we know about the modern consumer, it is that they love buying things on credit, and that they love to buy t-shirts with catchy sayings. From there, the rest of the HOE business plan really fell into place,” commented Zeitz. “In an ideal world, we would like them to buy a Harley-Davidson t-shirt with an Harley-Davidson credit card. That would be a real win for us.”
“We all know the financial reality of Harley-Davidson when it comes to continuing to sell motorcycles, and there is a current feeling at the Board of Directors level that the motorcycle-selling business will only become increasingly difficult during the next recession cycle, which is already here according to many economists,” continued Zeitz.
There is good reason then why the board is focusing on its other business operations, especially banking. The profit margins in banking are much more lucrative than manufacturing, and with the current attitudes in the US government, there is almost zero risk at the corporate level for Harley-Davidson in this regard.
Meanwhile, between unions, supply chains, and buyer behaviors, motorcycle manufacturing is only going to become increasingly more difficult as a business, especially as younger generations avoid transportation purchases.
“At its core, Harley-Davidson has always excelled at being a motorcycle lifestyle brand,” added Zeitz. “The new business plan for Harley-Davidson sees us focusing on the business operations that center on that lifestyle segment, but now without the burden of actually having to make the motorcycles.”
“This is the future of the motorcycle industry, and once again Harley-Davidson is at the forefront of the movement.”
That movement, starts today – on April 1st. Happy April Fools Day everyone!