Manufacturers have discovered that if their innovations are to be recognized, they must give investors the opportunity to own them alone.
(Bloomberg View)-Traditional manufacturers seeking correlation in the stock market increasingly driven by tech giants and fast-growing electric car manufacturers have found that two companies are better than one.
Harley-Davidson Inc. announced on Monday that it will create a separate public listing for its LiveWire electric motorcycle division by merging with the special purpose acquisition company AEA-Bridges Impact Corp. The transition to electric is a key principle of CEO Jochen Zeitz's "hard line" strategy to improve the company's sales growth and profitability. But the structural decline in demand means that the plan will only achieve single-digit growth in annual revenue in the motorcycle sector-considering the overall sales situation this year, this goal is not encouraging. As Bloomberg Intelligence analyst Kevin · As noted by Kevin Tynan, it is expected to be about 30% lower than the 2014 peak. "Hard-line" transformation also requires an annual expenditure of 190 million to 250 million U.S. dollars, which is a difficult task for a company that lacks the support of large industrial enterprises. Most competitors like the parent company.
Zeitz, who will serve as the acting chief executive officer of the new entity for two years, said in a statement that the development of the electric motorcycle business "will allow LiveWire the freedom to fund new product development and accelerate its listing model." "LiveWire will be able to operate as an agile and innovative public company, while benefiting from the large-scale manufacturing and distribution capabilities of its strategic partners Harley-Davidson and KYMCO." The latter, a Taiwan-based power sports equipment manufacturer, will also Invest US$100 million in the new LiveWire entity. Harley will retain a 74% stake and support the business through its engineering and manufacturing expertise and global supply chain infrastructure-which means it should still receive some valuation gains from repositioning to achieve the energy transition without having to bear energy The full burden of transformation. The necessary capital investment.
Investors were very excited: After the news, Harley's stock price rose by 19.5%, and then fell back to about 5.5%. Even a small increase will add hundreds of millions of dollars to the value of the company's equity. Before Monday’s announcement, Harley’s market value this year was basically flat.
The Harley deal is a microcosm of a larger trend in the industrial sector. The long-term complaint against traditional manufacturers is that they have little trust from investors in terms of innovation, while start-ups that rely to some extent on hopes and dreams without income and business prospects have received sky-high returns. For example, Rivian Automotive Inc., an electric car startup, has low revenue but has a market value of more than $100 billion. However, I often read reports to question whether Rockwell Automation, whose quarterly sales is close to 2 billion U.S. dollars, is in a good position to take advantage of the equally important narratives in the field of robotics and software on the factory floor and whether it is overvalued. 41 billion U.S. dollars. Rockwell is one of the lucky ones.
Melius Research analyst Scott Davis said in an interview earlier this month that the industrial sector as a whole "has very serious growth problems." For every popular product or high-flying topic, such as factory automation or indoor air quality Equipment, such as grocery store refrigerators, oil and gas pumps, or ordinary motorcycles, has a slow-sale or unwelcome counterpoint. When the electric motorcycle or industrial software business is burdened with all the burdens of traditional manufacturers, why are investors willing to pay high fees for the electric motorcycle or industrial software business? Many companies have concluded that if they want their crown jewels to be recognized, they must give investors a chance to own them individually.
Swiss manufacturing giant ABB Ltd. plans to conduct an initial public offering for its electric vehicle charging unit in the first half of 2022; it will retain a majority stake in the business. Emerson Electric Co. merged some of the company's software assets with Aspen Technology Inc. to create a dedicated industrial software entity that will own 55% of the shares. The idea is that software-centric businesses will have higher multiples and stronger currencies for future acquisitions. The transaction was made after Schneider Electric SE merged its software business with Aveva Group Plc in 2018 in exchange for a 60% stake in the combined company. For most of the past few decades, the industrial sector has been dismantling the corporate group structure, but historically, most of the splits have focused on dumping junk assets that have depressed overall valuations. Exploiting faster-growing parts to reduce the burden of the industrial parent company's low valuation requires a psychological shift, but it may bring higher returns in today's market.
In an industry closely related to Harley’s traditional pigs, a parallel debate is underway: petroleum. The valuation multiples of renewable energy-related stocks are much higher than those of oil giants, partly because these renewable energy companies now tend to consume rather than produce. So, like Harley, some of these companies are weighing how to capture the excitement of the energy transition — thereby reducing capital costs — while making it part of the overall business. Catering to two distinct sets of shareholders at the same time is always a difficult arbitrage, often attracting the attention of activists. As Royal Dutch Shell Plc discovered, Dan Loeb called for a breakup . Eni SpA is a more nuanced approach that can be directly compared to Harley's LiveWire initiative. The Italian oil giant will divest its retail energy and renewable energy businesses next year and establish a new listed entity, Plenitude, which will retain 70% of the shares. The idea is to use ESG excitement while showing that traditional businesses are still committed to achieving net zero emissions targets.
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Brooke Sutherland is a Bloomberg opinion columnist covering trading and industrial companies. She previously wrote an M&A column for Bloomberg News.
This story was published from the feed of the wire transfer agency, and the text was not revised. Only the title was changed.
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