Two weeks and two separate rumors about Hero MotoCorp’s acquisition warpath. Last week the Indian motorcycle manufacturer was said to be eyeing a minority equity stake in Erik Buell Racing. Having already hired the American sport bike maker to help innovate on some of Hero’s upcoming small displacement machines, the two companies sweetened the deal with Hero becoming the title sponsor to EBR’s AMA Pro Superbike racing effort.
This week the spotlight shines on Ducati Motor Holding, which has quietly been for sale for almost a year now. Originally wooing an acquisition from Mercedes-Benz, the Italian motorcycle manufacturer has been linked to a variety of other companies, as well as a public offering on an Asian stock index. With our sources telling us that Ducati has been trimming the fat from its books in order to make its earnings more attractive, Hero MotoCorp is the latest potential buyer to enter the fray and to talk to bankers about a Ducati acquisition.
The important thing to remember about the this set of Hero/Ducati rumors is that the speculation is stemming from investment bankers themselves seeking out Hero MotoCorp as a potential buyer, which is substantially different from Hero courting the Italian firm with its wallet out. With over $1 billion in cash reserves, Hero MotoCorp is one of the few motorcycle manufacturers that could even consider an acquisition of Ducati, and still have the purchase make some sort of sense with the company’s business direction.
“Lots of people have been coming to us with Ducati: Not one banker but many bankers,” Hero MotoCorp Managing Director Pawan Munjal said to Bloomberg News. “We’re talking to a lot of people. Not just Ducati, whoever comes to us, we talk to them.”
Despite the fact that “professionals” of the moto-journalism world have already labeled Hero MotoCorp as having thrown its hat in Ducati’s ring, it’s far to early to say that Hero has more than a passing interest in Ducati. As any good businessman will tell you, one has to remain open to all possibilities. Hero MotoCorp’s involvement with bankers regarding Ducati should merely be seen as the Indian manufacturer assessing the state of the market, and the options available to it. With Investindustrial reportedly hoping for a €1 billion valuation of Ducati Motor Holding, Hero MotoCorp would be roughly a quarter billion euros short of the acquisition price at today’s market rate (again, “professional” motorcycle journalists can’t seem to keep their dollars, euros, and pounds sterling straight…sigh), creating the issue of how the largest Indian motorcycle brand would fully-fund such a transaction.
Slightly more credible than the Hero/Ducati rumors is the one pertaining to Hero MotoCorp acquiring a minority stake in Erik Buell Racing. One of the companies I’ve tipped as ripe for purchase in 2012, EBR has a serious growth problem if it doesn’t get outside of investment. One of the more peculiar things from EBR’s partnership with Hero is the seemingly one-sided nature of the deal, which traditionally would see some sort of investment take place by one of the parties.
It makes sense then that Pawan Munjal would tip the company’s interest in acquiring a portion of EBR in the future. “We have a flexible free-flowing pact with EBR, which would be developed into a equity partnership,” said Hero MotoCorp’s Munjal. From that statement, the deal reached between Erik Buell Racing and Hero MotoCorp would appear to be more involved and complex than originally thought, and I am sure that Buell is gauging the response to the idea of an Indian company investing in a manufacturer whose brand has centered around being “American” in every possible horrible way.
Source: Bloomberg & The Economic Times
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