United Colours of Ducati?
Although the Volkswagen Audi Group (VAG – the ultimate owner of Ducati) is still refusing to confirm or deny the rumours that it is looking to exit the motorcycle business, there has been more than enough unofficial discussion, especially involving VAG Trade Union board members, and financial industry “informed sources” commenting and reporting on it for us to be able to assume that the rumours are true.
The old adage about there being no smoke without fire has never been more appropriate. Highly respectable motorcycle manufacturing executives on at least three continents have either explicitly or effectively acknowledged that there is an opportunity in play to acquire Ducati. Personally, I really don’t put much faith in economic analysts or spokespeople for equity investors, investment banks or hedge funds, but, again, enough major players in the financial industry have also been drawn into the speculation to, again, make it highly unlikely that there isn’t action here.
To be fair, the unofficial word coming out of VAG is that their definition of “the right buyer” has more to it than money alone, and that if VAG feels that they are not going to be able to pass stewardship of Ducati on to a “safe pair of hands”, then when it comes to it, they may not sell, and that they are placing a premium on a “good” decision, rather than a “quick” decision.
‘return to Italian ownership’
Meantime though, the “not invented here” principle that is often such a barrier to valuable corporate memory and consistency, to say nothing of the need to fund emissions scandal fines, point to a new management at VAG (headed up by Matthias Mueller) that regards the acquisition of Ducati in the first place as having been a vanity project. One taken by a now discredited Chairman who was left with no option than to withdraw from the field of battle when it became apparent just how much reputational as well as financial damage the emissions scandal was going to inflict.
Volkswagen and the other businesses in its group had previously been a business that was regarded blue chip and a robust pillar of German business probity, and German business culture prizes that reputation almost above all else, so it would not be a surprise if the present management were in the market to put as much distance between them and the prior management and its decisions as possible.
Of all the channels of speculation that have been actively reporting the progress of the sale, one of the generally most reputable has been the Reuters news agency. Back in June they reported that VAG had appointed Evercore, a New York based “investment boutique” to circulate a sale prospectus and gather in bids by an unspecified date in July.
The latest reports from Reuters suggest that bids have been received (though interestingly not from Harley-Davidson, who had been reported to have appointed Goldman Sachs to act for them in the matter) and that once the more rational candidate bids had been short-listed, the sale would move on to a second stage from which a preferred buyer would be chosen.
The two front runners at this still early stage are reported to be the Italian Benetton family and KTM partner Bajaj Auto of India.
The Benetton family’s investment vehicle Edizione Holding is reported to have tabled an opening bid that values Ducati at around 1 billion euro – which is way below the 1.5 billion euro region that VAG were hoping to realise; that is ambitious though as it would represent a multiplier of more than 10 times the estimated 100 million euro that Ducati is reported to have made for VAG last year, and double the 731 million euro revenue that Ducati reported last year.
While there may be some sentiment to see Ducati return to Italian ownership, probably not enough sentiment to bridge that gap without a substantially improved offer; but first bids are just that, a marker, a statement of interest, and the real horse-trading starts now.
Reuters says its sources are also reporting that other bids have been received, and among them name-check Bajaj Auto, Eicher Motors (owner of Royal Enfield and a utility vehicle joint venture partner with Polaris), Polaris Industries itself, former Formula One owner CVC Capital Partners, Advent, PAI, Investindustrial (former Ducati owner, who sold Ducati to VAG for 860 million euro in 2012) and several others, including Boston, Massachusetts based Bian Capital, owner of a stake in BRP of Ski-Doo and Austrian Rotax engines fame, and the one-time workplace of former U.S. Presidential candidate Mitt Romney.
Of those bids, it is the Indian Bajaj Auto conglomerate’s interest that appears to be creating the most excitement. Rajiv Bajaj is reportedly quoted as saying he is “confident” about his prospects for winning what would be quite a prize for him in the fiercely competitive battle between the Indian transport industry giants.
Indian newspaper reports quote him as saying “we are very close to finalising a very promising alliance… it’s not certain that it will happen, but if it does, it will open up enormous possibilities for the company. That is why we keep our money (cash on books) with us, so, once in a while, when an opportunity comes along, we are ready.” Bajaj is reported to have about $13 billion in free cash stashed away on its books.
BMW, Honda, Suzuki, China’s Loncin and Hero and TVR of India (as well as Harley-Davidson it would appear) are believed to be among those who had expressed initial interest of some kind or another, but who ultimately declined to pursue it on the grounds that the price VAG is seeking is just too high to represent a viable investment at this time.
