Forget Sturgis, the annual biker meetup. Harley Davidson riders may want to shift gears towards Omaha. That’s because the motorcycle maker just joined General Electric, Coca-Cola, Goldman Sachs and Budweiser on the shelf of Warren Buffett’s collection of iconic American corporate brands
By Aliza Rosenbaum, breakingviews.com
Last Updated: 6:23AM GMT 04 Feb 2009
But unlike the chopper-maker’s leather-vested customers, the billionaire investor isn’t forking over a trophy price. Rather Harley’s paying the premium for Buffett’s show of confidence.
In that sense, the deal is straight from the Berkshire Hathaway boss’s downturn toolkit, which saw him recapitalize Goldman, the Tiffany name on Wall Street (if one can ever be said to exist after its recent stumbles); and General Electric, the country’s premier industrial group. In both of those deals, Buffett snagged preferred stock on excellent terms larded with plenty of downside protection.
In the Harley deal, Buffett is buying $300m in debt, a big step towards the total of $1bn that Harley wants to raise to shore up its financial services unit. Davis Selected Advisers is committing another $300m. The business, which provides loans to dealers and consumers, lost $25m in the fourth quarter. In return for their largesse, Buffett and Davis are being paid a juicy 15pc coupon – eight times the yield of a five-year Treasury bond
As with his equity stakes in Coke, Procter & Gamble and Kraft, or his financing help in the Mars/Wrigley deal, Buffett is making a wager on the financial endurance of an iconic American brand. Harley has a global, cult-like following, but has been having a tough time finding buyers for its expensive toys – shipments are expected to fall up to 13pc in 2009, following an 8pc drop in 2008.
The high interest rate on the loan is no surprise where Buffett is concerned. His arrival in the capital structure bolsters the case for copycat investors. Indeed, even though Buffett is way ahead of them in the pecking order, news of the deal pushed Harley shares up nearly 16pc on Tuesday. Harley’s equity investors are clearly betting that both Buffett, and Harley’s, legends will roll on.
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