Harley-Davidson (HOG) – Get Harley-Davidson, Inc. Report bikes are known for being loud and intense, but supply chain issues are forcing the company to go quiet for the next two weeks.
The Milwaukee-based company announced that it will suspend all vehicle assembly and shipments, excluding its electric vehicle line LiveWire.
Harley-Davidson said it received information from a third-party supplier late on March 17 concerning a regulatory compliance issue relating to the supplier’s component part.
The company said it is making the move out of an abundance of caution and that it is “committed to finding a solution and resolving this situation is a matter of urgency.”
When contacted, Harley-Davidson said that it does not have any additional information.
The move could complicate the company’s recovery — it was previously on track to get back to the year-to-date high closing share price of $42.01 in February.
Over the last three months, the stock is down more than 20%.
The Future of LiveWire
Late last year, Harley-Davidson announced that it is splitting off its electric-bike division to merge with a special acquisition company and take it public.
“This transaction will give LiveWire the freedom to fund new product development and accelerate its go-to-market model,” Harley-Davidson Chief Executive Jochen Zeitz said in a statement at the time.
“LiveWire will be able to operate as an agile and innovative public company while benefitting from the at-scale manufacturing and distribution capabilities of its strategic partners.”
The deal will be funded by AEA-Bridges’ $400 million cash held in trust and another $100 million investment each from Harley-Davidson and Taiwanese motorcycle maker Kymco.
At closing, Harley will retain a 74% equity stake in the new company with ABIC shareholders owning 17% and AEA-Bridges’ founders and Kymco getting 4% each.
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LiveWire would become the first publicly traded EV motorcycle company in the U.S.
The division was previously seen as an integral part of the Milwaukee parent’s 2021 to 2025 strategic plan to achieve long-term profitable growth.
Zeitz will be chairman of LiveWire for as long as two years after the deal closes.
The combined company is expected to have an enterprise value of about $1.77 billion and post-money equity value of about $2.31 billion at closing.
SPACs, or blank-check companies, are formed for the express purpose of finding and merging with an operating partner.
The idea is to speed the operating company to the public markets and avoid the extended process of a traditional initial public offering.
Harley-Davidson May Have a Bright Future
In April, Morningstar analyst Jaime Katz assigns Harley a wide moat but with a negative trend.
She puts fair value at $42, compared with a recent quote around $39.
“Covid-19 gave Harley the chance to reset its long-term strategy and focus efforts back on its core consumer, one which we believe holds the key to higher profit margins ahead,” Katz wrote in a February commentary.
“With the launch of ‘The Hardwire’ strategy, [Chief Executive] Jochen Zeitz is chasing the highest return-on-investment opportunities for Harley.”
But there are some caveats, she said.
“There are no switching costs to protect Harley’s brand when consumers replace their bikes, and the premium price Harley commands relative to its peers has proven problematic during cyclical downturns and periods of competitive pricing,” she said.