Polaris Powersports - Euro Notes - Up To Speed

KTM's Polaris Missive

By Alan Cathcart, Photography by Paul Barshon

While much of the recent financial news in the motorcycle industry has focused on ties to the Far East, it's "Westward Ho!" for one of Europe's largest manufacturers, KTM. Behind the announcement last summer that Minneapolis-based powersports giant Polaris would spend $80 million to purchase a 24 percent interest in the Austrian off-road specialist lies the birth of another potential major player in the world of motorcycling. That's if the marriage is indeed consummated after what KTM insiders term "a two-year betrothal"-the agreement between the two companies stipulates an option for Polaris to acquire a controlling majority of KTM shares in 2007, or in the unlikely event things don't work out for KTM to repurchase Polaris' equity.

With 2004 sales of $1.8 billion, Polaris' revenues dwarf those of KTM, which that same year reached a still impressive $480 million. But the two companies appear to represent a perfect fit, with KTM's off-road motorcycle line and its growing range of sporting V-twin streetbikes perfectly complementing the Victory range of traditionally American V-twin cruisers. In theory, Polaris powersports dealers will now have an off-road motorcycle range to sell alongside their snow-mobiles and ATVs.

The agreement specifies a trial period, during which each company will continue to be run separately, but will collaborate with the other on product development, engine technology, manufacturing, purchasing and distribution. This collaboration in the short term will especially benefit KTM, which has been badly hit by the 30 percent collapse of the dollar versus the Euro since 2002. But it will also benefit Polaris in terms of providing high-end engineering capability for its ATV range and delivering improved distribution for Victory motorcycles outside the USA. Joint purchasing will help drive down costs; selling KTM bikes through Polaris dealers in the USA will increase sales; Polaris' expertise in the ATV market will benefit KTM's imminent arrival in this growing sector with a range of competition four-wheelers; and it can surely only be a matter of time before KTM motorcycles are manufactured in the USA, thus driving down prices in a key market responsible for 25 percent of the company's total sales volume.

"In essence, this partnership combines the substantial strength, passion, and success of two industry leaders with very similar, successful 50-year histories, but who do not compete directly today," explained Polaris CEO Tom Tiller. "It's a very natural fit for both of us, which will bring benefits to each".

For KTM CEO Stefan Pierer, the Polaris deal represents the endgame in a 15-year turnaround strategy that can only be compared to Harley-Davidson's similar odyssey from near-bust in the bad old AMF days to the current boom times. In December 1991, KTM was declared bankrupt, dragged down financially by the ills of other diversified elements in the Trunkenpolz family empire which had founded it. Splitting the motorcycle business away from these loss-making subsidiaries and re-floating it was the work of Pierer, the firm's principal individual shareholder and the man with the vision to build the company into its present dominant position in the world's off-road and dual-purpose markets.

After Pierer and his partners took over the bankrupt company in '92, they worked hard to build it up again, and took it public on the Vienna Stock Exchange in '96. But three years later Pierer and his partner Rudolph Knuenz decided, with the help of German private equity fund BC-Partner, to buy back the shares and take the company private again-the first time that had ever been done in Austria. Together, they bought back 99.7 percent of the stock, of which 51 percent is now owned by Pierer and Knuenz and, prior to the Polaris sale, 48 percent by BC-Partner. Now, Polaris owns half of the latter's shares and will purchase the balance should it decide to absorb KTM fully in 2007. If that deal goes through, it will create a company that, on the basis of present revenues, will be bigger than both Suzuki's and Kawasaki's entire motorcycle divisions.

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