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A new electric vehicle company is planning an IPO
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A new electric vehicle company is planning an IPO
For corporations, 2021 has been a year of big spinoff plans and volatile SPAC offerings. As of this week, Wall Street and investors had one more iconic name to add into both financial engineering columns: Harley-Davidson.To get more news about ev, you can visit davincimotor.com official website.
The motorcycle maker announced plans to spin off its electric bike division, LiveWire, as a new company through a SPAC deal that values Harley’s EV business at roughly $1.8 billion.
That’s not near the valuations some of the EV car makers, including Rivian Automotive and Lucid Group, have seen after recent market debuts, but it points to a fundamental challenge legacy companies, long leaders in their market, face as the world changes and mega trends such as energy transition and electrification become more central to investing.
Across multiple sectors, climate change is leading to calls for a rethinking of how iconic companies are structured. Royal Dutch Shell recently came under activist investor pressure to consider spinning off its renewable energy business. GM and Ford, while expressing no interest on their own, have been subject to questions from the market as to whether new EV businesses may be better as stand-alone companies.“If anything this underlines what we’ve been saying for a long time. Detroit, wake up! The train has left the station! EVs are inevitable,” Roth Capital analyst Craig Irwin said in the Reuters report on the Harley-Davidson deal. “Many traditional OEMs (Original equipment manufacturers) with emerging EV businesses can obviously do similar spinoff transactions.”The special purpose acquisition company that LiveWire will merge with is an ESG-focused SPAC, AEA-Bridges Impact Corporation.
Climate change isn’t the only major transition theme that is leading to calls for corporate breakups, as major department store companies including Macy’s and Kohl’s face investor pressure to spin off online retail operations as e-commerce continues to grow. And these debates about how best to realize shareholder value are taking place on a broader landscape of corporate spinoffs involving iconic companies from GE to Johnson & Johnson.
For Harley-Davidson, the spinoff plan raises short-term questions about how best to fund and build a new business for a new transportation and consumer era, and longer-term questions about where the greater value will reside in the Harley-Davidson brand in the future — it will retain 74% control of the new company’s shares.Growth assets in the EV space are being valued differently than mature low/no growth assets like an internal combustion engine manufacturing enterprise, according to David S. MacGregor, Longbow Research analyst. “While the LiveWire spinoff isn’t yet being valued similar to other well-known EV stocks, the growth potential of the stand-alone business will be recognized in the years ahead and the valuation will follow,” he said.
From a product standpoint, even though the legacy business and EV business are both two-wheel bikes, they are different product categories and at different stages of evolution. That leads to several considerations which favor a spinoff, according to MacGregor. For LiveWire to recruit the talent that will allow it to succeed, management will need the autonomy of a stand-alone company, which in turn will allow them to create financial incentives for key managers that tie directly to the achievement of performance milestones. Autonomy also means making decisions on capital with the benefits of a clear market story.
“There is more for us to learn, but LiveWire was not likely to tap the flow of capital into electric vehicles as part of legacy Harley-Davidson,” wrote Craig Kennison, Robert W. Baird & Co. analyst in a note this week.Research on corporate divestitures conducted by Emilie Feldman, professor of management at The Wharton School, University of Pennsylvania, indicates that similar thinking has benefitted in the recent history of corporate spinoffs.
“My analysis is unequivocal,” Feldman recently told CNBC. “We definitely see these big performance improvements both in divesting companies and then equally when we look at the performance of the companies spun off, they tend to strongly perform after the completion of the separation from the former parent company,” said Feldman, whose book “Divestitures: Creating Value Through Strategies, Structure and Implementation,” will be published next year.There are reasons for Harley-Davidson to separate the EV business as it continues with its own turnaround plan. It is not only the small developing business that can get lost inside the larger company to its detriment, but it can also be an added capital strain on a company facing major demographic and market shifts. It may be 2025 or 2026 before LiveWire reaches breakeven, and for Harley-Davidson it makes sense to not have that drain on its profit & loss statement while undergoing a broader turnaround plan under Harley-Davidson CEO and Chairman Jochen Zeitz.