On Monday, April 19, 2021, a charger was connected to a LiveWire electric bike at a Harley-Davidson showroom and repair shop in Lindon, Utah, USA.
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For enterprises, 2021 was a year of large spin-off plans and volatile SPAC offerings. As of this week, Wall Street and investors had another iconic name to add to both financial engineering columns. Harley-Davidson..
Motorcycle makers have announced plans to spin off LiveWire, the electric bike division, as a new company through a SPAC agreement that values Harley’s EV business at around $ 1.8 billion.
This is not close to the ratings of some EV car makers, including: Rivian Automotive When Lucido GroupWas seen after its recent market debut, but as the world changes and megatrends such as energy conversion and electrification become central to investment, it presents the fundamental challenges faced by legacy companies, long-time market leaders. is showing.
Across multiple sectors, climate change has led to the need to rethink how iconic enterprises are organized.Royal Dutch Shell recently from activist investors Consider a spin-off of the renewable energy business.. Although GM and Ford show no interest on their own, they are exposed to market questions as follows: Whether the new EV business may be better as an independent company..
“If anything, this emphasizes what we’ve been saying for a long time. Detroit, get up! The train left the station! EVs are inevitable,” said an analyst at Ross Capital. , Craig Irwin Said in a Reuters report on Harley-Davidson transactions.. “Many traditional OEMs (Original Equipment Manufacturers) with emerging EV businesses can clearly do similar spin-off transactions.”
The special purpose acquisition company that LiveWire will merge with is AEA-Bridges Impact Corporation, an ESG-focused SPAC.
Climate change is not the only major transition theme for corporate dissolution. Macy’s When Coles As e-commerce continues to grow, it faces investor pressure to spin off online retail operations. And these discussions about the best way to achieve shareholder value are: A wider landscape of corporate spin-offs Symbolic companies from GE to Johnson & Johnson are involved.
For Harley-Davidson, spin-off plans are short-term questions about the best way to raise money and build new businesses for the new transportation and consumer era, and where the Harley-Davidson brand is of great value. Raise a long-term question about. Future — Holds 74% control of the new company’s shares.
David S, an analyst at Longbow Research. According to MacGregor, growth assets in the EV sector are valued differently than mature low-growth / non-growth assets such as internal combustion engine manufacturers. “LiveWire spin-offs, like other well-known EV stocks, haven’t been valued yet, but the growth potential of standalone businesses will be recognized in the coming years, and valuations will follow,” he said. ..
From a product perspective, both the legacy business and the EV business are two-wheeled bicycles, but they have different product categories and different stages of evolution. According to MacGregor, that leads to some considerations in favor of spin-offs. For LiveWire to hire people for success, management needs the autonomy of an independent company. This provides financial incentives for key managers who are directly linked to achieving performance milestones. Autonomy also means making capital decisions, benefiting from a clear market story.
“There’s still a lot to learn, but LiveWire couldn’t take advantage of the flow of capital to electric vehicles as part of the Legacy Harley-Davidson,” Craig Kennison, Robert W. Baird & Co. Analyst writes.
Survey on the sale of a company What Emily Feldman, a professor of business administration at the Wharton School of the University of Pennsylvania, has done shows that similar ideas have helped in the history of recent corporate spin-offs.
“My analysis is clear,” Feldman recently told CNBC. “These significant performance improvements are definitely seen in both selling companies, and the performance of spin-off companies shows that they will perform strongly after the separation from the previous parent company is completed. There is a tendency, “says Feldman. “Divestitures: Creating Value through Strategy, Structure and Implementation” will be published next year.
There is a reason to separate the EV business as Harley-Davidson continues its own turnaround plan. It is not only small developing businesses that can suffer losses within large companies, but also the potential to impose additional capital burden on companies facing significant demographic and market changes. There is also. LiveWire may reach the break-even point in 2025 or 2026. For Harley-Davidson, it makes sense for the income statement to be lean while implementing a broader turnaround plan under Harley-Davidson CEO and Chairman Jochenzeitz.
Harley-Davidson has announced plans to spin off as an independent EV company through an ESG-focused contract with SPAC for LiveWire motorcycles.
“Currently, both the new and old companies are show-me stories, and investors aren’t excited about HOG stocks given the demographic issues that still weigh on the traditional heavy-duty bicycle market. Despite the new management running on the right side, they still face the challenges posed by the mistakes of the previous management in developing their strategies and expect to take a few more years to resolve. “.
In some obvious ways, the two companies remain attached to the hips. Zeitz will act as Chairman and Deputy CEO of LiveWire, and Harley-Davidson CFO Gina Goetter will act as CFO.
Baird said LiveWire is funding new product developments, accelerating market launch models, while benefiting from the manufacturing scale and distribution capabilities of Harley-Davidson-based scooters and electric bike company KYMCO. I did. ..
Strategic priorities and R & D also overlap.
As the largest producer of heavyweight petrol-powered motorcycles, Harley-Davidson “is in a unique position to shape the future of the motorcycle industry,” Baird wrote in Harley’s ESG summary.
Zeitz, who founded Harley’s Sustainability Commission after joining the company as CEO, said he asked CNBC this week to “think long-term and think about electrification.” “Through LiveWire, we can actually lead the electrification of sports, so taking the final ultimate step to spin off sports is a logical thing to do now,” he said. Told.
LiveWire focuses on urban consumers, but Zeitz says it can also bring technology back to Harley. “Harley-Davidson has great potential both as a brand and as a company, but it will be one of the key strategic factors that will help us reach our ultimate goal,” he said. rice field.
Harley’s timing wasn’t good for SPAC. Just as market volatility has increased and investors are reluctant to grow stories and some of the hottest tech trends. Rivian sold out after this week’s earnings and is expected to produce lower than expected, with some recent SPACs trading but selling well.
Harley shares appeared in spin-off news earlier this week, but stocks are stuck in the mid- $ 30 range after rising earlier under Wall Street’s acclaimed Zeitz new management strategy. Has fallen to.
Zeitz told CNBC earlier this year: “Electrification is given.”
But LiveWire isn’t about 2022 in terms of numbers. Today, the LiveWire business is the foundation of 387 LiveWire motorcycles and will generate $ 33 million in revenue in 2021, according to Baird’s research. Anyway, this isn’t the way streets evaluate EV stories — Rivian reported $ 1 million in revenue, but still sits at a market capitalization of over $ 80 billion after that decline.
Harley predicts that more than 100,000 electric bicycles will generate $ 1.77 billion in sales in 2026 and approximately 190,000 EVs will generate $ 3 billion in revenue by 2030. Baird’s forecast for shipments of traditional motorcycles this year is 186,000.
“Of course it’s not linear and will depend heavily on when new products are brought to market,” Zeitz said. “There are many opportunities to grow the business. Looking at the overall adoption rate, we can see that it will increase dramatically over the next few years.”
This deal may not be able to achieve the valuation of other “concept stocks” received this year, but analysts have said that opening the deal and establishing brand autonomy is a new initiative, especially for top management. It says it could be more important to adopt.
Ultimately, few people claim that in the future there will be no more EVs on the road than internal combustion engine cars, whether cars or motorcycles. Harley is in control of many aspects of the motorcycle business. Dealer network to service and finance. This means that it’s difficult to create a long-term bare case for Harley to be an EV leader, even if the market and many of its dealers aren’t convinced.
Harley has been dead money for some time, and many dealers today continue to focus on growing sales of traditional and used motorcycles. From here, the future of both Harley and LiveWire has the potential to move in different directions. For now, LiveWire may have a more compelling long-term story, but it’s time to get a lot of investor attention and a high EV rating because of the potential themes. takes.
However, there is one notable factor that consumers will not see in the new LiveWire bike brand. It’s the name of Harley-Davidson.
“Ultimately, you wouldn’t be surprised to see an EV company with a larger market capitalization than Legacy,” Mac Gregor said.
A new EV company is planning an IPO, which has a long history
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