JP Morgan Deal Case Study 2012 - BMW and Harley Davidson

1

Potential Acquisition of Harley-Davidson by BMW AG

Case Study- The Deal 2012

2

Overview• Motorcycle Industry• Brief Profile – BMW AG• Brief Profile – Harley Davidson

Slide 3 - 5

Deal Rationale

Key Issues to consider while acquiring Harley Davidson 7

Valuation drivers of Harley Davidson 8

Valuation Summary 15

Bidding Strategy and Deal Structure 19

9 - 14

Valuation Methodologies• DCF – Including Synergies• Market Multiples• Comparable Transactions

16- 18

Credit Worthiness of BMW AG• KMV Model• Credit Metrics Analysis

Merits and Demerits of Valuation Methodologies used 23 - 24

Accretion Dilution Analysis

20

Evaluation of Alternatives 22

6

Value Creation Analysis

21

Appendix 25

Agenda

3

Industry Analysis- MotorcyclesIndustry O

verview

Global motorcycles sales stagnated between 2006 and 2010 but volume sales increased during the same period

Total global motorcycle revenues in 2010: $63 billion The market is expected to grow at a CAGR of

6% for the period between 2010 and 2015

European market : CAGR @ 3.3% Asia-Pacific markets: CAGRs @ 6.5%, between 2010 and 2015

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

56

58

60

62

64

66

68

70

72

74

76

2006 2007 2008 2009 2010

% gr

owth

$ bi

llion

s

$ billion % growth

43.20%

32.50%

20.50%

3.80%

Asia Pacific

Americas

Europe

Middle East and Africa

Global market segmentation, by region ‘10

Global market value 2006-2010

0

1

2

3

4

5Buyer Power

Supplier Power

Degree of rivalryThreat of new entrants

Threat of substitutes

Five Forces Analysis

*Source:: Datamonitor Industry report October 2011

4

Brief Profile – BMW AGB

MW

AG

- Acquirer

Goals and Objectives

Mission : To be the world’s leading provider of

premium products and premium services for individual mobility.

Key Pillars of Strategy : Growth Shaping the future Profitability Access to technology and customers

Business Portfolio BMW AG headquartered in Munich,

Germany manufactures and sells luxury cars and motorcycles worldwide.

It owns and produces the MINI marque, and is the parent company of Rolls-Royce.

BMW produces motorcycles under BMW Motorrad and Husqvarna brands.

In 2010, the BMW group produced 1,481,253 automobiles and 112,271 motorcycles across all its brands.

Recent Investments

Investments in new products and in the expansion of international production network -around € 3.7 billion (2011).

Investment company BMW i Ventures set up in February 2011 – for assessing strategic investments in innovative mobility service providers

Acquired 15 entities of the ING Car Lease Group (ICL Group)

Revenue

EBITDA

EBIT

EBT

ROE

EPS

0% 10% 20% 30% 40% 50% 60% 70% 80%

14%

33%

57%

76%

29%

52%

2012 Y-o-Y growth

*Source: BMW AG annual report and company website

Brief Profile – Harley DavidsonH

arley Davidson- P

otential Target

Goals and ObjectivesStrategy : Sustain a loyal brand community active

through clubs, events, and a museum.

Harley-Davidson motorcycles have a distinctive design and exhaust note and is known for the tradition of heavy customization

Business Portfolio Harley-Davidson Motor Company, produces

heavyweight motorcycles and a complete line of motorcycle parts, accessories and general merchandise.

Harley-Davidson Financial Services provides motorcycle financing to Harley-Davidson dealers and customers in the U.S. and Canada

Fig: Distribution of Sales (in millions) by region Fig: Distribution of Sales (in millions) by product lines

76.2%

17.5%

5.9%0.4%

By Product

Line

Motorcycles

Parts & Accessories

General Management

Others67.7%

16.8%

4.9%3.3%

3.0%4.3%

ByRegion

US

Europe

Japan

Canada

Australia

Others

5*Source: Harley Davidson annual report and company website

6

Harley Davidson will help BMW AG to reach out to the American market D

eal Rationale

Market Expansion

Cost synergies

Addition of new product lines to existing product portfolio

Harley Davidson currently has a 55.7% of the US market and BMW Motorcycle is a relatively small player. BMW can leverage the existing dealer and distribution network of Harley in the US to bolster its own sales

Similarly, Harley Davidson will have a foray into the European market where BMW AG has a strong presence

Amongst the 5 segments of the total heavyweight motorcycle market, BMW is present in 3 of them (Sport Bikes, Touring, Street Bikes) and Dirt Bikes (through Husqvarna)

It does not have a presence in the popular Cruiser segment where Harley Davidson is a major player

By acquiring Harley Davidson, it can expand its portfolio to be a major player in this category

With a successful merger, BMW AG can exploit the existing product development practices of Harley Davidson and apply them to their own stable

Both companies can realize cost synergies and product development

7

Financial Issues Business Issues How much market expansion can be achieved by the

acquisition of Harley Davidson? What is the shareholding pattern of Harley Davidson? Is it

highly fragmented or are there few shareholders with high stake?

Are the values and employee culture of both the companies compatible with each other?

Is the acquisition of Harley Davidson in line with long term goals of BMW AG?

Should BMW AG retain top management team of Harley Davidson?

What would be the competitors’ reaction? Would there be any regulatory issues in this acquisition?

Marketing Issues What would be the effect on the brand equity of BMW AG? What will be the brand strategy in markets where brands of

both these companies are competing with each other? How would the advertising campaigns of BMW AG be affected

by inclusion of new brands in its portfolio?

Operational Issues What are the existing distributional channels of Harley

Davidson and how can they be utilized most efficiently after the acquisition?

What would be the effect on relationships of existing key suppliers & customers of both BMW AG and Harley Davidson ?

How much operational costs can be reduced by increased operational efficiency due to economies of scale achieved through the acquisition of Harley Davidson?

What would be the revenue growth rate for next 10 years and terminal growth rate of Harley Davidson?

How much premium above the share price should be given while deciding the bid price?

What would be the acquisition structure? Would BMW AG purchase assets or stocks of Harley Davidson?

What would be the payment structure? Would BMW AG pay in cash or its stock?

How would the transaction be funded? What would be the effect on credit rating of BMW AG if large

amount of debt is taken to finance the acquisition? If cash position of BMW AG worsens due to this acquisition,

what would be its effect on future dividend policy of BMW AG?

Key issues to consider as part of acquisition of Harley DavidsonM

&A Issues

Source: Team Analysis

8

Revenue Earnings

Valuation Drivers H

arley Davidson Valuation D

rivers

Volume growth in different regions• Harley-Davidson has a very small

market share in Europe.

• On the other hand, BMW is a very big name in Europe with a large market share and vast distribution networks.

• This will help Harley in expanding its sales in the European region

• As the European crisis comes to an end, spending on cult brands like Harley shall revive and thus boost Harley’s sales.

• Also, the last few years have seen a good growth in the women’s segment bikes.

• EBITDA Margin of Harley-Davidson is about 12% as compared to 18% for BMW

• Productivity of Harley is expected to increase with time when acquired by BMW

• With time, due to cost synergies, EBITDA margin for Harley Davidson is expected to increase to 14% in the base case scenario

• It is expected to increase to 16% in the best case scenario

• Apart from distribution network and cost synergies, other synergies expected are in product development and R&D.

9

Three Primary Valuation Methodologies

DCF

This methodology values a company as sum of its free cash flows over a forecasted period and the terminal value at the end of forecast period

Market Multiples

Values a target company by referencing key financial ratios of peer group companies.

Transaction Comparable

Values a target company by referencing M&A transaction multiple paid in recent times by companies involving business operations of similar nature, size and similar M&A motives

40% 20% 40%

Range of share price for target company

Contribution to Final Value Range

Harley D

avidson Valuation

The Market Multiples method is applicable for a non-strategic buyer. It does not account for the premium a strategic buyer would pay. Hence we assigned a lesser weightage to this method.

10

Best Case ScenarioSales Growth Rates EBIT Growth Rates

First 3 Years 5.0% First 3 Years 12%-13.5%4-6 Years 6.0%-8.0% 4-6 Years 13.5%-15%6-10 Years 8.0%-10.0% 6-10 Years 15%-16%

Firm Value 9224Equity Value 8224Price Per Share 35.52Assumptions:-Global motorcycle industry growth consideredOperating Margin due to synergies improved to 16%Sales Synergies increase to 10%

Scenario Analysis : Changing growth rates

Metrics used in DCFWACC 9.71%

Perpetual Growth 1.50%

Debt 1000.01

# of Shares 231.519

Detailed calculations are furnished in appendix

Key pointers to growth rates• Revenue growth rates assumed includes the price mix growth

and the volume mix growth rates by region. • Price mix is the major driver of the revenue growth• Perpetual growth rate does not exceed the average long term

growth of the groups individual geographical segment

Worst Case ScenarioSales Growth Rates EBIT Growth Rates

First 3 Years 6.0% First 3 Years 12%4-6 Years 6.0% 4-6 Years 12%6-10 Years 6.0% 6-10 Years 12%

Firm Value 6711Equity Value 5711Price Per Share 24.67

Assumptions:-Global motorcycle industry growth consideredSynergies not realized

Base Case ScenarioSales Growth Rates EBIT Growth Rates

First 3 Years 3.0%-4.0% First 3 Years 12%-12.5%4-6 Years 4.0%-6.5% 4-6 Years 12.5%-13.5%6-10 Years 6.5%-8.0% 6-10 Years 13.5%-14.0%

Firm Value 7968Equity Value 6968Price Per Share 30.10

Assumptions:-Operating Margin due to synergies improved to 14%Sales Synergies increase to 8%

DCF Valuation - Share price ranges from $24.67 – $35.52

5.43

5.42

Harley D

avidson Valuation

11

Assumptions and Findings

We have assumed a 10% shift in all the four parameters and have evaluated the share price variation and have found the following results

Harley Davidson’s Share price is most susceptible to change in EBIT(which is due to change in operational efficiency) – As Harley Davidson is already pursuing operational efficiency drives, the share prices are expected to rise due to increase in margins

Share prices are also highly sensitive to WACC which is dependent on the capital structure of the firm. With de-gearing and the up gradation of Moody’s and Fitch rating the WACC would be lower in the coming years and we expect the share price to go up

DCF Valuation – Sensitivity AnalysisH

arley Davidson Valuation

12

Market Multiples

Assumptions• # of shares 231 m., WACC=9.71%• # of companies considered 6*• Share prices are PV of expected share prices in 2012 and 2013, discounted at WACC

EV/Revenue EV/EBITDA P/E

Harley D

avidson Valuation

* List of companies used for calculating market multiple is furnished in appendix

13

Average Share Prices Calculation of share price

15

Median

17

19

11

Methodology*• Calculate expected market cap in 2012E and

2013E from each market multiple• Discount expected market cap by WACC of

Harley Davidson• Divide the PV of market cap by the of shares

outstanding to obtain share prices• Final share price range is calculated by taking

average share prices from each market multiple

Market MultiplesH

arley Davidson Valuation

(1)

(4)

(2)

(2)

-

-

-

5

1

2

3

-6 -4 -2 0 2 4 6

EV/Revenue

EV/EBITDA

P/E

Average Prices

Average values used for calculating market cap EBITDA 794.57Revenue 5061.20Earnings Per Share 1.73Debt 344.65Cash 1153.74# of Shares 231.5 mnWACC 10%

* List of companies used for calculating market multiple is furnished in appendixAll numbers are in USD

14

Share Prices Calculation of share price

Methodology• 10 Transactions are used to calculate the

transaction comparable ranges • Calculate expected market cap in 2012E and

2013E from each transaction comparable• Discount expected market cap by WACC of Harley

Davidson• Divide the PV of market cap by the number of

shares outstanding to obtain share prices.• Final share price range is calculated by taking

average share prices from each transaction comparable.

Transaction ComparablesH

arley Davidson Valuation

31

50

41

24

3731

12

2116

0

10

20

30

40

50

60

FV/EBITDA FV/EBIT Average

Shar

e Pr

ices

in $

Transaction comparables

High Median Low

* List of companies used for calculating transaction comparable is furnished in appendix

15

Valuation• Median share price for Opco. division of Harley Davidson is 25 USD• BMW can bid in the region of 18 – 31 USD per share

Selected Valuation Ranges

Share Prices Lower Range Median Upper Range WeightsDCF Valuation 25 30 36 40%Market Multiples 11 13 16 20%Trans. Comparables 17 31 41 40%Final Share Price 16 24 30  

DCF

Market Mult

Trans. Comparables

Final Price

0 5 10 15 20 25 30 35 40 45

Share Price

16 30

14 39

11 16

25 36

Valuation SummaryH

arley Davidson Valuation

16

KMV methodology to estimate credit worthinessC

redit Worthiness of B

MW

AG

Overview• KMV* methodology estimates the firm’s probability

of default on the debt repayments thus provides an estimate of the firm’s creditworthiness.

• Using this methodology the equity of the firm can be seen as a call option on the firm’s assets.

• Calculating market value of assets using options framework as shown in the figure alongside

Asset Value Debt Value

Asset Ownership

Bankrupt

>Exercise

the option

Don’t exercisethe option

Other key terminologies used• Default Point

– If asset value drops below this value then company will default

– Generally taken as market value of debt to be repaid at any time t

• DD (Distance-to-Default)– Number of standard deviations asset value must

deviate from its mean to drop below “Default Point”• EDF (Estimated Default Frequency)

– Probability that market value of assets will drop below “Default Point” and company will default

Source: http://www.ma.hw.ac.uk/~mcneil/F79CR/Crosbie_Bohn.pdf * KMV: (Vasicek/ Kealhofer Model)

KMV Model Results: BMW AG has a credit rating of “A”

KMV Calculation Steps

FYE March 2011 2012

Equity MV 38.54 44.18

Equity Volatility 29% 29%

Liability 63.382 86.542

Asset MV 100.98 106.82

Asset Volatility 10.97% 9.80%

Default Point 43.69 61.56

Distance-to-Default 5.174 4.323

KMV Calculation(BMW)

Variable Description

Market value of equity (Share Price) x (Shares Outstanding)

Book Liabilities Balance sheet

Market value of assets Black-Scholes Option-pricing model

Asset volatility Black-Scholes Option-pricing model

Default Point Liabilities payable within one year.

Distance-to-Default(DD)

(Asset MV - Default Point) -------------------------------------- (Asset MV * Asset Volatility)

Estimated Default Frequency

One-to-One association with Distance-to-Default using Empirical distribution of Asset value

KMV Inference

BMW has DD ratio of 4.271 for next year after merger which corresponds to EDF ~ 0.057%

EDF ~ .057% corresponds to avg. credit rating of ‘A’

KMV Assumptions

Risk Free Rate = 1.5% EDF in next year calculated for one FY

* Source: www2.standardandpoors.com/spf/pdf/fixedincome/relationship_between.pdf

KMV(After Merger)

FYE March 2012

Equity MV 48.69

Equity Volatility 29%

Liability 87.175

Asset MV 111.26

Asset Volatility 10.39%

Default Point 61.88

Distance-to-Default 4.271

Credit W

orthiness of BM

W A

G

Financial Ratios to measure credit worthiness

The credit worthiness of BMW after acquisition of Harley has not been affected, as seen from the above financial ratios.

Source: S&Ps rating criteria

Credit Metrics Analysis of BMW AGC

redit Worthiness of B

MW

AG

    BMW-Harley BMW Daimler

AG Volkswagen Fiat Peugeot Renault

    FY12 (E) FY11 FY11 FY11 FY11 FY11 FY11

ProfitabilityEBITDA Margin 16.62% 21.10% 24.00% 17.50% 14.87% 17.10% 20.60%

PAT Margin 8.08% 7.09% 5.32% 9.67% 2.24% 0.98% 4.91%

ROCE 9.24% 11.10% 10.11% 8.24% 6.04% 4.87% 3.26%

Cash Flow

FFO/Net Debt 31.85% 23.70% 25.80% 57.07% 163.73% 166.41% -281.25%

RCF/Net Debt 31.32% 20.84% 17.90% 52.85% 158.02% 144.65% -274.44%

FCF/Debt 10.59% 11.14% 5.56% 19.06% 51.40% -17.73% 27.69%

LeverageDebt/EBITDA 3.18 2.58 1.46 1.59 2.34 0.75 0.72

Debt/Gross Cash Accruals 4.38 3.89 4.04 1.73 4.41 2.16 1.29

CoverageEBIT/Interest

expense 9.51 8.50 18.89 9.84 1.57 3.95 2.65

Others Working Capital Cycle 48.48 48.39 52.81 127.04 -28.62 -5.09 -4.26

  RATING A A A- A- BB BB+ BB+

Upper bound - $30.3 per share which includes the DCF value of BMW and 100% of synergies realized in best case scenario. This is calculated using the three valuation methodologies combined

Lower bound is $16.5 per share which is derived with worst case scenario with no synergies .

We advise BMW AG to bid only for the OpCo division of Harley Davidson. The reason not bid for the FinCo division of Harley is BMW has a much bigger and established financial services division of its own

Bidding Strategy

Source: Team Analysis , Details furnished in appendix

Share price calculated (Median) $ 23.8

Market Value $ 5512.43 mn

Financed Through Cash (80%) $4409.95 mn

Financed Through Debt(20%) $ 1102.49 mn

Deal Structure at Base Price

Considering the fact that we wish to acquire only OpCo , the bid is reasonably good.

Bidding Strategy – Recommend an initial bid of $23.8/shareB

idding Strategy

The deal is structured as an cash deal since synergies are expected to be realized to a good extent.

In addition to this BMW has huge cash reserves on its balance sheet and the acquisition of Harley Davidson will not affect it drastically.

The deal creates a value of $ 2.1 per share for the BMW shareholders incorporating synergies created

Value Creation A

nalysis

BMW Harley-OpCo Synergies BMW-Harley Value creation

95.8

105.0

5.8 3.33

Value Creation for BMW = $2.1/share of Harley Davidson

Total Target price $104.95

$102.85

True price paid

Target value: 101.61 # shares of Harley outstanding 231.52Synergy value: 3.33 # shares of BMW outstanding 655.11Total target value: 104.95

BMW Share Price (2012E) 95.79Less “True price” (102.85) OpCo-Harley Value (without synergy) 3813.56Value creation 2.10 OpCo-Harley Value per share on BMW 5.82

BMW-Harley expected Share Price 104.95Synergy 3.33Total Value from Harley & Synergy 5998.02

Total Value from Harley & Synergy per share of Harley 25.91Price Paid to Harley per share 23.81

Value Creation to BMW shareholders per share of Harley 2.10

Total Value Creation to BMW shareholders ($ mn) 485.59

* Details in appendix

  Years  BMW (2012E) BMW-Harley (2012E)

P/E ratio 8.74 8.74

EPS ($) 10.96 12.01

Share Price $95.79 $104.97

Increase in share price $9.18

% increase in share price 9.58%

Accretion – Dilution on Assumed deal structure

Assumptions: Expected Share Price is calculated using the same P/E ratio for 2012; and is

assumed the same for the merged entity P/E Ratio is assumed to be the same which is 8.74 as per the current market price

Merger can result in an immediate increase of $ 9.18 in share priceA

ccretion Dilution A

nalysis

22

Alternate Options for BMW AG- Victory Motorcycles, USA

Goals & Objectives

Strong brand and presence in premium segment of motorbikes

Royal Enfield, India

•Oldest motorcycle brand in the world.• Operates in niche segment• Premium models: Bullet, Thunderbird, Interceptor

Victory Motorcycles, USA Triumph Motorcycles, UK

• Created by Polaris – direct competitor of HD• Operates in touring , sports touring and cruiser•segments.

•Largest surviving UK motorcycle mnfg, since 1902.• Operates in all segments of motorbike

Presence in growing economies across the world

Company’s potential for having growth

Opportunity to improve profitability of local businesses, sustainably

Synergies possible with BMW’s current portfolio in motor bikes

• Huge potential of Indian market (Rising income levels)• GDP growth of 7-8 %

• Revenue(Y-o-Y growth)– 40 %• EBITDA margin – 11%• PAT margin – 5.6 %

• Increasing dealer network (currently-230)• Current waiting time – 5 mths•New plants( current utilization -100%)

• RE is in Cruisers (350 – 700 cc)•Hence its line extension for BMW and opens Indian market for BMW motorbikes.

• Saturated growth of US motorbike market • GDP growth of 1.5 % - 2%

• Revenue(Y-o-Y)– 27%• PAT margin – 7.4 %• PAT (Y-o-Y) – 46%

•Focus on product innovation and increasing speed to market.• Needs Lean mfg and low cost purchasing

• BMW technical expertise and lean manufacturing techniques can increase PAT margins for Victory

• Declining growth of European market • GDP growth - 0.5 - 1%

• Revenue(Y-o-Y)– 11%• PBIT margin – 6.5 %• PBIT (Y-o-Y) – 48%

• Stagnant Production facilities - opening plants in Thailand• Large no of variants to be supported

• Triumph – a major competitor for BMW• Can help in gaining economies of scale.

Evaluation of A

lternatives

23

Merits and demerits of valuation methodologies(1/2)Valuation M

ethodologies

Benefits

Is not affected by temporary market factors If confident on assumptions and projections, it’s the

most sound method for valuation Allows future operating strategy of the company to

be taken into account Not constrained with non-negative values Can be applied to any level of aggregation Can deal with complex situations also

Limitations

Accuracy highly dependent on the assumptions taken Growth Rate Terminal Value WACC/ Discount Rate

Forecasting future performance is subjective Less relevant for early stage companies More weight on the terminal value Can give a very wide range of value WACC assumes constant capital structure DCF does not take into account debt obligations

Discounted Cash Flow (DCF) Method

Based on publicly available information hence transparent

Realistic – Gives an idea about actual premium paid in the successful transactions

Helps to indicate the plausibility of ‘control premium’ through the past transactions

Recent transactions can reflect the investor sentiment towards an industry

Assumes past acquirers valued the target appropriately

Not relevant for unprofitable companies Buyer synergies impacts the price paid for the

acquired companies Includes premium in strategic acquisitions Not relevant in high volatility environment Works only if comparable transactions/ their data

exist

Comparable Transaction Method

Source: Team analysis

24

Merits and demerits of valuation methodologies(2/2)Valuation M

ethodologies

Benefits Limitations

Effective since uses public data that is readily available

Highly transparent Less biased compared to DCF method Simple and less resource intensive Market efficiency ensures that market growth,

industry trends are taken into account Projected information taken from third parties hence

less biased

Does not include any control premium Comparable company data’s reliability is subjective Contain the irrationality associated with stock

market Less comparable if the companies chosen does not

trade robustly If a comparable company metric is negative the

method cannot be applied Accounting policies of the two companies may be

different which may complicate comparability Comparable companies’ projected data may be

unavailable Factors like the companies risk, growth potential are

ignored

Companies Multiples Method

Source: Team analysis

25

Appendix

26

World Map showing countries where Harley Davidson bikes are sold

27

BMW-Harley projected Balance Sheet

28

BMW-Harley projected Balance Sheet

29

OpCo-Harley Davidson DCF Valuation (Best Case – Full Synergies)H

arley Davidson Valuation

30

OpCo-Harley Davidson DCF Valuation (Base Case)Valuation M

ethodologies

Base Case 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Terminal ValueSales $4,662 5071 5355 5710 6030 6428 6788 7237 7714 8146 8683EBIT $561 610 643 714 754 804 882 941 1041 1100 1216 % margin 12% 12% 13% 13% 13% 13% 13% 14% 14% 14%Tax Rate 37% 36.6% 36.6% 36.6% 36.6% 36.6% 36.6% 36.6% 36.6% 36.6% 36.6%NOPAT 356 387 407 453 478 509 560 596 660 697 771

174 189 200 213 225 240 253 270 288 304 324

3.7%189 198 208 219 230 241 253 266 279 293 308

3.91% 3.89% 3.83% 3.81% 3.75% 3.73% 3.68% 3.62% 3.60% 3.55%

19 16 12 15 13 17 15 19 20 18 224.0%

FCFF 322 394 411 461 486 525 574 619 689 726 809 9977No. of years 0.00 1 2 3 4 5 6 7 8 9 10Value multiple 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42 0.39 0.39PV 358 339 347 332 326 324 318 321 308 312 3847

WACC 10.00%Perpetuity Growth 1.75%

Firm Value 8,228 Debt 1,000 Equity Value 7,228 # of Shares 231.519

Price Per Share 31.22

Plus: Depreciation & AmortizationLess: Capital Expenditures

Less: Increase in Net Working Capital

Cash and Cash Equivalents

$1,097

31

OpCo-Harley Davidson DCF Valuation (Worst Case)H

arley Davidson Valuation

32

Date Target Acquirer Reason

Feb ’12 Peugeot GM Revitalizing European operations and reducing capital expenditure

May ’11 Chrysler Fiat Increase in production capacity and using Chrysler’s brand image to launch Fiat diesel vehicles in the US

Dec ’10 Suzuki Volkswagen Exploit utility in making small, fuel efficient cars and give Suzuki access to investment funds

Mar’10 Volvo Car Corp.

Zhejiang Geely Holding Group

Produce luxury brands in China while maintaining access to US market

Mar ’10 Renault Nissan Increase economies of scale for both and focus on emerging markets

Mar ‘08 Jaguar & Land Rover

Tata Motors Acquire a global footprint and enter the high-end premier segment of the global automobile market

June ‘05 Ferrari Mubadala Development Co.

To develop dynamic new strategies especially in the Middle East and North African market

Mergers/ Partnerships across the industry

33

Appendix – Companies considered for market multiplesH

arley Davidson Valuation

2012E 2013E 2012E 2013E 2012E 2013EHonda 51,799 58,280 0.4 0.38 3.6 3.2 8.7 7.5KTM 789 575 1.23 1.12 9.7 8.5 29.2 21Mitsubishi 11,093 5,415 0.44 0.4 6.2 5.3 12.8 8.9Piaggio 1,494 912 0.75 0.69 5.5 4.7 14.1 10.8Suzuki 6088 11521 0.18 0.17 1.9 1.7 11.6 10.5Yamaha Motor 6195 3363 0.37 0.34 5.9 4.7 11.8 7.9

EV/RevenueCompany Firm Value(US

$mm)Market Cap(US

$mm)EV/EBITDA P/E

34

Appendix – Companies considered for transaction multiplesH

arley Davidson Valuation

S.No Date Target/Acquirer FV/EBITDA FV/EBIT1 Feb-12 Peugot-GM 2.1x 7.0x2 Jan-08 Chrysler-Fiat 3.2x 10.9x3 Mar-04 Suzuki-Volkswagen 6.7x 22.1x4 Jul-04 Ferrari-ESOP 9.3x 22.3x5 Jul-05 Ferrari-MedioBancaSpa 16.0x 38.3x6 Jan-10 Chrysler-CerebrusCapital 4.8x N/A7 Apr-09 Volvo-Zhejiang 19.2x N/M8 May-02 Porsche-Volkswagen 9.4x 18.3x9 May-09 Jaguar-TataMotors 2.2x 3.5x10 Mar-00 Ferrari-Mubadala 8.9x 15.8x

35

4.261

d2 N(d1) N(d2) Distance-to-Default

2012 (E) 48.69 29.00% 87.977 111.260 10.332% 1 62.28 2.47 2.37 0.993 0.991

Asset MV Asset Volatility Duration Default

Point d1FYE March Equity MV Equity

Volatility Liability

KMV Calculations

36

Company Information

BMW Harley Davidson Total Shares Outstanding 655.11 Total Shares Outstanding 231.51

Net Income (2011) $6006 Net Income 2011 $599 EPS $9.22 EPS Per Share $2.58

Current Price $74.25 Current Price $42.00PE Multiple 8.74x PE Multiple 16.27xEquity Market Value $48,642 Equity Market Value $9723Total Debt Outstanding $ 39388 Total Debt Outstanding $1000Total Market Value $88030 Total Market Value $10123Debt/ Market Value 44.74% Debt/ Market Value 9.8%

Tax Rate 33.54%

Deal Structure (including only OpCo )

Given Share price by the acquirer 23.8 Maximum Bidding Price 30.3Market Value $5512.43 Median Price for Base Case 23.8Financed Through Cash (80%) 4409.95 Minimum Bidding price 16.5Financed Through Debt (20%) 1102.49

Appendix – Company Statistics and Deal Structure

37

JPMC deal document Annual Report of BMW 2011-12 Annual Report of Harley Davidson 2011-12 Datamonitor Industry Reports- Motorcycle Industry October 2011 http://www.bloomberg.com accessed on August 10, 2012 10-K filing of Harley Davidson 2011 Annual reports of Triumph motorcycle, Royal Enfield and Indian Motorbikes http://www.ma.hw.ac.uk/~mcneil/F79CR/Crosbie_Bohn.pdf accessed on

August 10, 2012

Appendix – References