1
Potential Acquisition of Harley-Davidson by BMW AG
Case Study- The Deal 2012
2
Overview• Motorcycle Industry• Brief Profile – BMW AG• Brief Profile – Harley Davidson
Slide 3 - 5
Deal Rationale
Key Issues to consider while acquiring Harley Davidson 7
Valuation drivers of Harley Davidson 8
Valuation Summary 15
Bidding Strategy and Deal Structure 19
9 - 14
Valuation Methodologies• DCF – Including Synergies• Market Multiples• Comparable Transactions
16- 18
Credit Worthiness of BMW AG• KMV Model• Credit Metrics Analysis
Merits and Demerits of Valuation Methodologies used 23 - 24
Accretion Dilution Analysis
20
Evaluation of Alternatives 22
6
Value Creation Analysis
21
Appendix 25
Agenda
3
Industry Analysis- MotorcyclesIndustry O
verview
Global motorcycles sales stagnated between 2006 and 2010 but volume sales increased during the same period
Total global motorcycle revenues in 2010: $63 billion The market is expected to grow at a CAGR of
6% for the period between 2010 and 2015
European market : CAGR @ 3.3% Asia-Pacific markets: CAGRs @ 6.5%, between 2010 and 2015
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
56
58
60
62
64
66
68
70
72
74
76
2006 2007 2008 2009 2010
% gr
owth
$ bi
llion
s
$ billion % growth
43.20%
32.50%
20.50%
3.80%
Asia Pacific
Americas
Europe
Middle East and Africa
Global market segmentation, by region ‘10
Global market value 2006-2010
0
1
2
3
4
5Buyer Power
Supplier Power
Degree of rivalryThreat of new entrants
Threat of substitutes
Five Forces Analysis
*Source:: Datamonitor Industry report October 2011
4
Brief Profile – BMW AGB
MW
AG
- Acquirer
Goals and Objectives
Mission : To be the world’s leading provider of
premium products and premium services for individual mobility.
Key Pillars of Strategy : Growth Shaping the future Profitability Access to technology and customers
Business Portfolio BMW AG headquartered in Munich,
Germany manufactures and sells luxury cars and motorcycles worldwide.
It owns and produces the MINI marque, and is the parent company of Rolls-Royce.
BMW produces motorcycles under BMW Motorrad and Husqvarna brands.
In 2010, the BMW group produced 1,481,253 automobiles and 112,271 motorcycles across all its brands.
Recent Investments
Investments in new products and in the expansion of international production network -around € 3.7 billion (2011).
Investment company BMW i Ventures set up in February 2011 – for assessing strategic investments in innovative mobility service providers
Acquired 15 entities of the ING Car Lease Group (ICL Group)
Revenue
EBITDA
EBIT
EBT
ROE
EPS
0% 10% 20% 30% 40% 50% 60% 70% 80%
14%
33%
57%
76%
29%
52%
2012 Y-o-Y growth
*Source: BMW AG annual report and company website
Brief Profile – Harley DavidsonH
arley Davidson- P
otential Target
Goals and ObjectivesStrategy : Sustain a loyal brand community active
through clubs, events, and a museum.
Harley-Davidson motorcycles have a distinctive design and exhaust note and is known for the tradition of heavy customization
Business Portfolio Harley-Davidson Motor Company, produces
heavyweight motorcycles and a complete line of motorcycle parts, accessories and general merchandise.
Harley-Davidson Financial Services provides motorcycle financing to Harley-Davidson dealers and customers in the U.S. and Canada
Fig: Distribution of Sales (in millions) by region Fig: Distribution of Sales (in millions) by product lines
76.2%
17.5%
5.9%0.4%
By Product
Line
Motorcycles
Parts & Accessories
General Management
Others67.7%
16.8%
4.9%3.3%
3.0%4.3%
ByRegion
US
Europe
Japan
Canada
Australia
Others
5*Source: Harley Davidson annual report and company website
6
Harley Davidson will help BMW AG to reach out to the American market D
eal Rationale
Market Expansion
Cost synergies
Addition of new product lines to existing product portfolio
Harley Davidson currently has a 55.7% of the US market and BMW Motorcycle is a relatively small player. BMW can leverage the existing dealer and distribution network of Harley in the US to bolster its own sales
Similarly, Harley Davidson will have a foray into the European market where BMW AG has a strong presence
Amongst the 5 segments of the total heavyweight motorcycle market, BMW is present in 3 of them (Sport Bikes, Touring, Street Bikes) and Dirt Bikes (through Husqvarna)
It does not have a presence in the popular Cruiser segment where Harley Davidson is a major player
By acquiring Harley Davidson, it can expand its portfolio to be a major player in this category
With a successful merger, BMW AG can exploit the existing product development practices of Harley Davidson and apply them to their own stable
Both companies can realize cost synergies and product development
7
Financial Issues Business Issues How much market expansion can be achieved by the
acquisition of Harley Davidson? What is the shareholding pattern of Harley Davidson? Is it
highly fragmented or are there few shareholders with high stake?
Are the values and employee culture of both the companies compatible with each other?
Is the acquisition of Harley Davidson in line with long term goals of BMW AG?
Should BMW AG retain top management team of Harley Davidson?
What would be the competitors’ reaction? Would there be any regulatory issues in this acquisition?
Marketing Issues What would be the effect on the brand equity of BMW AG? What will be the brand strategy in markets where brands of
both these companies are competing with each other? How would the advertising campaigns of BMW AG be affected
by inclusion of new brands in its portfolio?
Operational Issues What are the existing distributional channels of Harley
Davidson and how can they be utilized most efficiently after the acquisition?
What would be the effect on relationships of existing key suppliers & customers of both BMW AG and Harley Davidson ?
How much operational costs can be reduced by increased operational efficiency due to economies of scale achieved through the acquisition of Harley Davidson?
What would be the revenue growth rate for next 10 years and terminal growth rate of Harley Davidson?
How much premium above the share price should be given while deciding the bid price?
What would be the acquisition structure? Would BMW AG purchase assets or stocks of Harley Davidson?
What would be the payment structure? Would BMW AG pay in cash or its stock?
How would the transaction be funded? What would be the effect on credit rating of BMW AG if large
amount of debt is taken to finance the acquisition? If cash position of BMW AG worsens due to this acquisition,
what would be its effect on future dividend policy of BMW AG?
Key issues to consider as part of acquisition of Harley DavidsonM
&A Issues
Source: Team Analysis
8
Revenue Earnings
Valuation Drivers H
arley Davidson Valuation D
rivers
Volume growth in different regions• Harley-Davidson has a very small
market share in Europe.
• On the other hand, BMW is a very big name in Europe with a large market share and vast distribution networks.
• This will help Harley in expanding its sales in the European region
• As the European crisis comes to an end, spending on cult brands like Harley shall revive and thus boost Harley’s sales.
• Also, the last few years have seen a good growth in the women’s segment bikes.
• EBITDA Margin of Harley-Davidson is about 12% as compared to 18% for BMW
• Productivity of Harley is expected to increase with time when acquired by BMW
• With time, due to cost synergies, EBITDA margin for Harley Davidson is expected to increase to 14% in the base case scenario
• It is expected to increase to 16% in the best case scenario
• Apart from distribution network and cost synergies, other synergies expected are in product development and R&D.
9
Three Primary Valuation Methodologies
DCF
This methodology values a company as sum of its free cash flows over a forecasted period and the terminal value at the end of forecast period
Market Multiples
Values a target company by referencing key financial ratios of peer group companies.
Transaction Comparable
Values a target company by referencing M&A transaction multiple paid in recent times by companies involving business operations of similar nature, size and similar M&A motives
40% 20% 40%
Range of share price for target company
Contribution to Final Value Range
Harley D
avidson Valuation
The Market Multiples method is applicable for a non-strategic buyer. It does not account for the premium a strategic buyer would pay. Hence we assigned a lesser weightage to this method.
10
Best Case ScenarioSales Growth Rates EBIT Growth Rates
First 3 Years 5.0% First 3 Years 12%-13.5%4-6 Years 6.0%-8.0% 4-6 Years 13.5%-15%6-10 Years 8.0%-10.0% 6-10 Years 15%-16%
Firm Value 9224Equity Value 8224Price Per Share 35.52Assumptions:-Global motorcycle industry growth consideredOperating Margin due to synergies improved to 16%Sales Synergies increase to 10%
Scenario Analysis : Changing growth rates
Metrics used in DCFWACC 9.71%
Perpetual Growth 1.50%
Debt 1000.01
# of Shares 231.519
Detailed calculations are furnished in appendix
Key pointers to growth rates• Revenue growth rates assumed includes the price mix growth
and the volume mix growth rates by region. • Price mix is the major driver of the revenue growth• Perpetual growth rate does not exceed the average long term
growth of the groups individual geographical segment
Worst Case ScenarioSales Growth Rates EBIT Growth Rates
First 3 Years 6.0% First 3 Years 12%4-6 Years 6.0% 4-6 Years 12%6-10 Years 6.0% 6-10 Years 12%
Firm Value 6711Equity Value 5711Price Per Share 24.67
Assumptions:-Global motorcycle industry growth consideredSynergies not realized
Base Case ScenarioSales Growth Rates EBIT Growth Rates
First 3 Years 3.0%-4.0% First 3 Years 12%-12.5%4-6 Years 4.0%-6.5% 4-6 Years 12.5%-13.5%6-10 Years 6.5%-8.0% 6-10 Years 13.5%-14.0%
Firm Value 7968Equity Value 6968Price Per Share 30.10
Assumptions:-Operating Margin due to synergies improved to 14%Sales Synergies increase to 8%
DCF Valuation - Share price ranges from $24.67 – $35.52
5.43
5.42
Harley D
avidson Valuation
11
Assumptions and Findings
We have assumed a 10% shift in all the four parameters and have evaluated the share price variation and have found the following results
Harley Davidson’s Share price is most susceptible to change in EBIT(which is due to change in operational efficiency) – As Harley Davidson is already pursuing operational efficiency drives, the share prices are expected to rise due to increase in margins
Share prices are also highly sensitive to WACC which is dependent on the capital structure of the firm. With de-gearing and the up gradation of Moody’s and Fitch rating the WACC would be lower in the coming years and we expect the share price to go up
DCF Valuation – Sensitivity AnalysisH
arley Davidson Valuation
12
Market Multiples
Assumptions• # of shares 231 m., WACC=9.71%• # of companies considered 6*• Share prices are PV of expected share prices in 2012 and 2013, discounted at WACC
EV/Revenue EV/EBITDA P/E
Harley D
avidson Valuation
* List of companies used for calculating market multiple is furnished in appendix
13
Average Share Prices Calculation of share price
15
Median
17
19
11
Methodology*• Calculate expected market cap in 2012E and
2013E from each market multiple• Discount expected market cap by WACC of
Harley Davidson• Divide the PV of market cap by the of shares
outstanding to obtain share prices• Final share price range is calculated by taking
average share prices from each market multiple
Market MultiplesH
arley Davidson Valuation
(1)
(4)
(2)
(2)
-
-
-
5
1
2
3
-6 -4 -2 0 2 4 6
EV/Revenue
EV/EBITDA
P/E
Average Prices
Average values used for calculating market cap EBITDA 794.57Revenue 5061.20Earnings Per Share 1.73Debt 344.65Cash 1153.74# of Shares 231.5 mnWACC 10%
* List of companies used for calculating market multiple is furnished in appendixAll numbers are in USD
14
Share Prices Calculation of share price
Methodology• 10 Transactions are used to calculate the
transaction comparable ranges • Calculate expected market cap in 2012E and
2013E from each transaction comparable• Discount expected market cap by WACC of Harley
Davidson• Divide the PV of market cap by the number of
shares outstanding to obtain share prices.• Final share price range is calculated by taking
average share prices from each transaction comparable.
Transaction ComparablesH
arley Davidson Valuation
31
50
41
24
3731
12
2116
0
10
20
30
40
50
60
FV/EBITDA FV/EBIT Average
Shar
e Pr
ices
in $
Transaction comparables
High Median Low
* List of companies used for calculating transaction comparable is furnished in appendix
15
Valuation• Median share price for Opco. division of Harley Davidson is 25 USD• BMW can bid in the region of 18 – 31 USD per share
Selected Valuation Ranges
Share Prices Lower Range Median Upper Range WeightsDCF Valuation 25 30 36 40%Market Multiples 11 13 16 20%Trans. Comparables 17 31 41 40%Final Share Price 16 24 30
DCF
Market Mult
Trans. Comparables
Final Price
0 5 10 15 20 25 30 35 40 45
Share Price
16 30
14 39
11 16
25 36
Valuation SummaryH
arley Davidson Valuation
16
KMV methodology to estimate credit worthinessC
redit Worthiness of B
MW
AG
Overview• KMV* methodology estimates the firm’s probability
of default on the debt repayments thus provides an estimate of the firm’s creditworthiness.
• Using this methodology the equity of the firm can be seen as a call option on the firm’s assets.
• Calculating market value of assets using options framework as shown in the figure alongside
Asset Value Debt Value
Asset Ownership
Bankrupt
>Exercise
the option
Don’t exercisethe option
Other key terminologies used• Default Point
– If asset value drops below this value then company will default
– Generally taken as market value of debt to be repaid at any time t
• DD (Distance-to-Default)– Number of standard deviations asset value must
deviate from its mean to drop below “Default Point”• EDF (Estimated Default Frequency)
– Probability that market value of assets will drop below “Default Point” and company will default
Source: http://www.ma.hw.ac.uk/~mcneil/F79CR/Crosbie_Bohn.pdf * KMV: (Vasicek/ Kealhofer Model)
KMV Model Results: BMW AG has a credit rating of “A”
KMV Calculation Steps
FYE March 2011 2012
Equity MV 38.54 44.18
Equity Volatility 29% 29%
Liability 63.382 86.542
Asset MV 100.98 106.82
Asset Volatility 10.97% 9.80%
Default Point 43.69 61.56
Distance-to-Default 5.174 4.323
KMV Calculation(BMW)
Variable Description
Market value of equity (Share Price) x (Shares Outstanding)
Book Liabilities Balance sheet
Market value of assets Black-Scholes Option-pricing model
Asset volatility Black-Scholes Option-pricing model
Default Point Liabilities payable within one year.
Distance-to-Default(DD)
(Asset MV - Default Point) -------------------------------------- (Asset MV * Asset Volatility)
Estimated Default Frequency
One-to-One association with Distance-to-Default using Empirical distribution of Asset value
KMV Inference
BMW has DD ratio of 4.271 for next year after merger which corresponds to EDF ~ 0.057%
EDF ~ .057% corresponds to avg. credit rating of ‘A’
KMV Assumptions
Risk Free Rate = 1.5% EDF in next year calculated for one FY
* Source: www2.standardandpoors.com/spf/pdf/fixedincome/relationship_between.pdf
KMV(After Merger)
FYE March 2012
Equity MV 48.69
Equity Volatility 29%
Liability 87.175
Asset MV 111.26
Asset Volatility 10.39%
Default Point 61.88
Distance-to-Default 4.271
Credit W
orthiness of BM
W A
G
Financial Ratios to measure credit worthiness
The credit worthiness of BMW after acquisition of Harley has not been affected, as seen from the above financial ratios.
Source: S&Ps rating criteria
Credit Metrics Analysis of BMW AGC
redit Worthiness of B
MW
AG
BMW-Harley BMW Daimler
AG Volkswagen Fiat Peugeot Renault
FY12 (E) FY11 FY11 FY11 FY11 FY11 FY11
ProfitabilityEBITDA Margin 16.62% 21.10% 24.00% 17.50% 14.87% 17.10% 20.60%
PAT Margin 8.08% 7.09% 5.32% 9.67% 2.24% 0.98% 4.91%
ROCE 9.24% 11.10% 10.11% 8.24% 6.04% 4.87% 3.26%
Cash Flow
FFO/Net Debt 31.85% 23.70% 25.80% 57.07% 163.73% 166.41% -281.25%
RCF/Net Debt 31.32% 20.84% 17.90% 52.85% 158.02% 144.65% -274.44%
FCF/Debt 10.59% 11.14% 5.56% 19.06% 51.40% -17.73% 27.69%
LeverageDebt/EBITDA 3.18 2.58 1.46 1.59 2.34 0.75 0.72
Debt/Gross Cash Accruals 4.38 3.89 4.04 1.73 4.41 2.16 1.29
CoverageEBIT/Interest
expense 9.51 8.50 18.89 9.84 1.57 3.95 2.65
Others Working Capital Cycle 48.48 48.39 52.81 127.04 -28.62 -5.09 -4.26
RATING A A A- A- BB BB+ BB+
Upper bound - $30.3 per share which includes the DCF value of BMW and 100% of synergies realized in best case scenario. This is calculated using the three valuation methodologies combined
Lower bound is $16.5 per share which is derived with worst case scenario with no synergies .
We advise BMW AG to bid only for the OpCo division of Harley Davidson. The reason not bid for the FinCo division of Harley is BMW has a much bigger and established financial services division of its own
Bidding Strategy
Source: Team Analysis , Details furnished in appendix
Share price calculated (Median) $ 23.8
Market Value $ 5512.43 mn
Financed Through Cash (80%) $4409.95 mn
Financed Through Debt(20%) $ 1102.49 mn
Deal Structure at Base Price
Considering the fact that we wish to acquire only OpCo , the bid is reasonably good.
Bidding Strategy – Recommend an initial bid of $23.8/shareB
idding Strategy
The deal is structured as an cash deal since synergies are expected to be realized to a good extent.
In addition to this BMW has huge cash reserves on its balance sheet and the acquisition of Harley Davidson will not affect it drastically.
The deal creates a value of $ 2.1 per share for the BMW shareholders incorporating synergies created
Value Creation A
nalysis
BMW Harley-OpCo Synergies BMW-Harley Value creation
95.8
105.0
5.8 3.33
Value Creation for BMW = $2.1/share of Harley Davidson
Total Target price $104.95
$102.85
True price paid
Target value: 101.61 # shares of Harley outstanding 231.52Synergy value: 3.33 # shares of BMW outstanding 655.11Total target value: 104.95
BMW Share Price (2012E) 95.79Less “True price” (102.85) OpCo-Harley Value (without synergy) 3813.56Value creation 2.10 OpCo-Harley Value per share on BMW 5.82
BMW-Harley expected Share Price 104.95Synergy 3.33Total Value from Harley & Synergy 5998.02
Total Value from Harley & Synergy per share of Harley 25.91Price Paid to Harley per share 23.81
Value Creation to BMW shareholders per share of Harley 2.10
Total Value Creation to BMW shareholders ($ mn) 485.59
* Details in appendix
Years BMW (2012E) BMW-Harley (2012E)
P/E ratio 8.74 8.74
EPS ($) 10.96 12.01
Share Price $95.79 $104.97
Increase in share price $9.18
% increase in share price 9.58%
Accretion – Dilution on Assumed deal structure
Assumptions: Expected Share Price is calculated using the same P/E ratio for 2012; and is
assumed the same for the merged entity P/E Ratio is assumed to be the same which is 8.74 as per the current market price
Merger can result in an immediate increase of $ 9.18 in share priceA
ccretion Dilution A
nalysis
22
Alternate Options for BMW AG- Victory Motorcycles, USA
Goals & Objectives
Strong brand and presence in premium segment of motorbikes
Royal Enfield, India
•Oldest motorcycle brand in the world.• Operates in niche segment• Premium models: Bullet, Thunderbird, Interceptor
Victory Motorcycles, USA Triumph Motorcycles, UK
• Created by Polaris – direct competitor of HD• Operates in touring , sports touring and cruiser•segments.
•Largest surviving UK motorcycle mnfg, since 1902.• Operates in all segments of motorbike
Presence in growing economies across the world
Company’s potential for having growth
Opportunity to improve profitability of local businesses, sustainably
Synergies possible with BMW’s current portfolio in motor bikes
• Huge potential of Indian market (Rising income levels)• GDP growth of 7-8 %
• Revenue(Y-o-Y growth)– 40 %• EBITDA margin – 11%• PAT margin – 5.6 %
• Increasing dealer network (currently-230)• Current waiting time – 5 mths•New plants( current utilization -100%)
• RE is in Cruisers (350 – 700 cc)•Hence its line extension for BMW and opens Indian market for BMW motorbikes.
• Saturated growth of US motorbike market • GDP growth of 1.5 % - 2%
• Revenue(Y-o-Y)– 27%• PAT margin – 7.4 %• PAT (Y-o-Y) – 46%
•Focus on product innovation and increasing speed to market.• Needs Lean mfg and low cost purchasing
• BMW technical expertise and lean manufacturing techniques can increase PAT margins for Victory
• Declining growth of European market • GDP growth - 0.5 - 1%
• Revenue(Y-o-Y)– 11%• PBIT margin – 6.5 %• PBIT (Y-o-Y) – 48%
• Stagnant Production facilities - opening plants in Thailand• Large no of variants to be supported
• Triumph – a major competitor for BMW• Can help in gaining economies of scale.
Evaluation of A
lternatives
23
Merits and demerits of valuation methodologies(1/2)Valuation M
ethodologies
Benefits
Is not affected by temporary market factors If confident on assumptions and projections, it’s the
most sound method for valuation Allows future operating strategy of the company to
be taken into account Not constrained with non-negative values Can be applied to any level of aggregation Can deal with complex situations also
Limitations
Accuracy highly dependent on the assumptions taken Growth Rate Terminal Value WACC/ Discount Rate
Forecasting future performance is subjective Less relevant for early stage companies More weight on the terminal value Can give a very wide range of value WACC assumes constant capital structure DCF does not take into account debt obligations
Discounted Cash Flow (DCF) Method
Based on publicly available information hence transparent
Realistic – Gives an idea about actual premium paid in the successful transactions
Helps to indicate the plausibility of ‘control premium’ through the past transactions
Recent transactions can reflect the investor sentiment towards an industry
Assumes past acquirers valued the target appropriately
Not relevant for unprofitable companies Buyer synergies impacts the price paid for the
acquired companies Includes premium in strategic acquisitions Not relevant in high volatility environment Works only if comparable transactions/ their data
exist
Comparable Transaction Method
Source: Team analysis
24
Merits and demerits of valuation methodologies(2/2)Valuation M
ethodologies
Benefits Limitations
Effective since uses public data that is readily available
Highly transparent Less biased compared to DCF method Simple and less resource intensive Market efficiency ensures that market growth,
industry trends are taken into account Projected information taken from third parties hence
less biased
Does not include any control premium Comparable company data’s reliability is subjective Contain the irrationality associated with stock
market Less comparable if the companies chosen does not
trade robustly If a comparable company metric is negative the
method cannot be applied Accounting policies of the two companies may be
different which may complicate comparability Comparable companies’ projected data may be
unavailable Factors like the companies risk, growth potential are
ignored
Companies Multiples Method
Source: Team analysis
25
Appendix
26
World Map showing countries where Harley Davidson bikes are sold
27
BMW-Harley projected Balance Sheet
28
BMW-Harley projected Balance Sheet
29
OpCo-Harley Davidson DCF Valuation (Best Case – Full Synergies)H
arley Davidson Valuation
30
OpCo-Harley Davidson DCF Valuation (Base Case)Valuation M
ethodologies
Base Case 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Terminal ValueSales $4,662 5071 5355 5710 6030 6428 6788 7237 7714 8146 8683EBIT $561 610 643 714 754 804 882 941 1041 1100 1216 % margin 12% 12% 13% 13% 13% 13% 13% 14% 14% 14%Tax Rate 37% 36.6% 36.6% 36.6% 36.6% 36.6% 36.6% 36.6% 36.6% 36.6% 36.6%NOPAT 356 387 407 453 478 509 560 596 660 697 771
174 189 200 213 225 240 253 270 288 304 324
3.7%189 198 208 219 230 241 253 266 279 293 308
3.91% 3.89% 3.83% 3.81% 3.75% 3.73% 3.68% 3.62% 3.60% 3.55%
19 16 12 15 13 17 15 19 20 18 224.0%
FCFF 322 394 411 461 486 525 574 619 689 726 809 9977No. of years 0.00 1 2 3 4 5 6 7 8 9 10Value multiple 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42 0.39 0.39PV 358 339 347 332 326 324 318 321 308 312 3847
WACC 10.00%Perpetuity Growth 1.75%
Firm Value 8,228 Debt 1,000 Equity Value 7,228 # of Shares 231.519
Price Per Share 31.22
Plus: Depreciation & AmortizationLess: Capital Expenditures
Less: Increase in Net Working Capital
Cash and Cash Equivalents
$1,097
31
OpCo-Harley Davidson DCF Valuation (Worst Case)H
arley Davidson Valuation
32
Date Target Acquirer Reason
Feb ’12 Peugeot GM Revitalizing European operations and reducing capital expenditure
May ’11 Chrysler Fiat Increase in production capacity and using Chrysler’s brand image to launch Fiat diesel vehicles in the US
Dec ’10 Suzuki Volkswagen Exploit utility in making small, fuel efficient cars and give Suzuki access to investment funds
Mar’10 Volvo Car Corp.
Zhejiang Geely Holding Group
Produce luxury brands in China while maintaining access to US market
Mar ’10 Renault Nissan Increase economies of scale for both and focus on emerging markets
Mar ‘08 Jaguar & Land Rover
Tata Motors Acquire a global footprint and enter the high-end premier segment of the global automobile market
June ‘05 Ferrari Mubadala Development Co.
To develop dynamic new strategies especially in the Middle East and North African market
Mergers/ Partnerships across the industry
33
Appendix – Companies considered for market multiplesH
arley Davidson Valuation
2012E 2013E 2012E 2013E 2012E 2013EHonda 51,799 58,280 0.4 0.38 3.6 3.2 8.7 7.5KTM 789 575 1.23 1.12 9.7 8.5 29.2 21Mitsubishi 11,093 5,415 0.44 0.4 6.2 5.3 12.8 8.9Piaggio 1,494 912 0.75 0.69 5.5 4.7 14.1 10.8Suzuki 6088 11521 0.18 0.17 1.9 1.7 11.6 10.5Yamaha Motor 6195 3363 0.37 0.34 5.9 4.7 11.8 7.9
EV/RevenueCompany Firm Value(US
$mm)Market Cap(US
$mm)EV/EBITDA P/E
34
Appendix – Companies considered for transaction multiplesH
arley Davidson Valuation
S.No Date Target/Acquirer FV/EBITDA FV/EBIT1 Feb-12 Peugot-GM 2.1x 7.0x2 Jan-08 Chrysler-Fiat 3.2x 10.9x3 Mar-04 Suzuki-Volkswagen 6.7x 22.1x4 Jul-04 Ferrari-ESOP 9.3x 22.3x5 Jul-05 Ferrari-MedioBancaSpa 16.0x 38.3x6 Jan-10 Chrysler-CerebrusCapital 4.8x N/A7 Apr-09 Volvo-Zhejiang 19.2x N/M8 May-02 Porsche-Volkswagen 9.4x 18.3x9 May-09 Jaguar-TataMotors 2.2x 3.5x10 Mar-00 Ferrari-Mubadala 8.9x 15.8x
35
4.261
d2 N(d1) N(d2) Distance-to-Default
2012 (E) 48.69 29.00% 87.977 111.260 10.332% 1 62.28 2.47 2.37 0.993 0.991
Asset MV Asset Volatility Duration Default
Point d1FYE March Equity MV Equity
Volatility Liability
KMV Calculations
36
Company Information
BMW Harley Davidson Total Shares Outstanding 655.11 Total Shares Outstanding 231.51
Net Income (2011) $6006 Net Income 2011 $599 EPS $9.22 EPS Per Share $2.58
Current Price $74.25 Current Price $42.00PE Multiple 8.74x PE Multiple 16.27xEquity Market Value $48,642 Equity Market Value $9723Total Debt Outstanding $ 39388 Total Debt Outstanding $1000Total Market Value $88030 Total Market Value $10123Debt/ Market Value 44.74% Debt/ Market Value 9.8%
Tax Rate 33.54%
Deal Structure (including only OpCo )
Given Share price by the acquirer 23.8 Maximum Bidding Price 30.3Market Value $5512.43 Median Price for Base Case 23.8Financed Through Cash (80%) 4409.95 Minimum Bidding price 16.5Financed Through Debt (20%) 1102.49
Appendix – Company Statistics and Deal Structure
37
JPMC deal document Annual Report of BMW 2011-12 Annual Report of Harley Davidson 2011-12 Datamonitor Industry Reports- Motorcycle Industry October 2011 http://www.bloomberg.com accessed on August 10, 2012 10-K filing of Harley Davidson 2011 Annual reports of Triumph motorcycle, Royal Enfield and Indian Motorbikes http://www.ma.hw.ac.uk/~mcneil/F79CR/Crosbie_Bohn.pdf accessed on
August 10, 2012
Appendix – References