Harley being bought out?

[derf]

Possibly by a company known for dismantling companies it buys. Hmmmm, possibly erics revenge?

http://www.jsonline.com/business/87811297.html

A rumor that Harley-Davidson Inc. is the target of a takeover bid - by a firm famous for buying and sometimes dismantling companies - drove the motorcycle maker's shares to a three-month high Tuesday.

The stock closed at $28.35, up 7% in trading that was nearly six times higher than the normal volume.

Investors responded to speculation that Harley was a takeover target by Kohlberg Kravis Roberts & Co., a private equity firm whose $25 billion purchase of RJR Nabisco in 1989 inspired a book and the movie "Barbarians at the Gate."

New York-based KKR would not comment on the Harley rumor that began with stock traders in Frankfurt, Germany.

Milwaukee-based Harley also declined to comment, but the rumor fueled a frenzy of media and analyst speculation.

Analysts say any company that is well run, and has a relatively cheap stock price, could be a takeover target. The company has been through a series of sharp staff reductions in the past year, including hundreds of jobs in the Milwaukee area.

"Just like many other stocks in the last few weeks, Harley-Davidson is popping on leveraged buyout rumors. On Friday it was Supervalu, today it is Harley," Jud Pyle, chief investment strategist at Options Network, told Reuters news agency.

Traders in Frankfurt cited "market talk" as the source of the rumor.

"Anything is possible. We see significant value in Harley," said analyst Craig Kennison with Robert W. Baird & Co.

"But we would be surprised if (Harley) management sold early in their turnaround strategy, near the bottom of a business cycle. There is too much value there, in my view," Kennison added.

On the plus side

Harley could benefit from private ownership because the company would no longer be in the constant spotlight of investors and analysts worried about quarterly earnings and the share price.

The company was privately owned for more than 60 years before going public in 1965 and then returning to privately held ownership between 1981 and 1986.

It would take some pressure off Harley's management as it makes long-term decisions, said analyst Ned Douthat with Ockham Research.

"And shareholders would not mind getting the buyout price. I don't want to speculate on what that price would be, but I would think it would be a pretty good premium," Douthat said.

In January, Harley reported its first quarterly loss in 16 years and predicted that 2010 would be a challenging year.

The world's largest maker of heavyweight motorcycles has been reorganizing its business through layoffs, factory closures and shutting down Buell Motorcycles, a sport-bike division based in East Troy.

Harley said its restructuring will cost $430 million to $460 million but will lead to annual savings of $240 million to $260 million once finished.

There's no doubt that private equity firms, which specialize in pumping money into struggling businesses and then profit when the businesses are sold or taken public, would be interested in Harley, according to analysts.

"The company's sales are starting to stabilize, and Harley is one of the most iconic brands in manufacturing," Douthat said.

The timing would make sense, given that Harley's stock price is relatively low and the market for takeovers has heated up, said analyst Phil Gorham with Morningstar Research.

"I call it a Goldilocks period because everything is 'just right.' Equity is not too expensive," and credit is coming back, Gorham said.

KKR's history

KKR is a firm that pioneered leveraged buyouts in the 1980s. Over the years it has acquired an ownership stake in dozens of companies including RJR Nabisco, Eastman Kodak and Motel 6.

"We work closely with the management teams of our portfolio companies and stay deeply involved in the operations of our businesses, providing them with substantial resources over an average investment period of five years or more," KKR says on its Web site.

"KKR and its portfolio companies are not distracted by the short-term perspectives of the financial markets. We are patient investors who focus on growing and improving businesses over the long term."

It's far from certain what KKR ownership would mean for Harley and its employees.

"You hear the horror stories of massive job cuts" when a private equity firm takes over a company, Douthat said.

"There's not a whole lot of family atmosphere with a private equity firm. There can be entirely new management, and employees don't know what to expect. That can cause a little bit of jitters for sure," he said.

Harley could not be taken over without the approval of the company's board of directors and shareholders.

"The most time-consuming part would be coming to terms on a price. Once that is done, it wouldn't take more than a few months" to complete a sale, Gorham said.

Some analysts were skeptical of the KKR rumor, saying it did not make sense for Harley to sell now that it has a restructuring plan and has secured important funding for Harley-Davidson Financial Services, the company's consumer lending division.

"You could have acquired the company at a much better price a year ago, but there was much less certainty then about how the economy was going to recover," Douthat said.

Italian link

It could be that KKR is interested in Harley-Davidson Financial Services rather than the motorcycle manufacturer.

The firm also could be working on a deal to acquire MV Agusta, the Italian motorcycle company that Harley bought in 2008 and recently put back on the market.

"Harley-Davidson certainly has a lot of assets that could attract any number of bidders," Douthat said.