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MILWAUKEE - Harley-Davidson Inc. (NYSE:HOG) announced Wednesday a strategic partnership with investment firms KKR and PIMCO that will transform its financial services arm into a capital-light business while unlocking approximately $1.25 billion in discretionary cash. The motorcycle manufacturer, currently valued at $2.79 billion, has maintained strong financial health with a current ratio of 1.56x, according to InvestingPro data.
Under the agreement, Harley-Davidson Financial Services (HDFS) will sell 4.9% common equity stakes to both KKR and PIMCO at a valuation of approximately 1.75 times post-transaction book value. The deal also includes the sale of more than $5 billion in retail loan receivables at a premium to par. This strategic move comes as the stock trades at an attractive P/E ratio of 8.38x, with InvestingPro analysis suggesting the stock is currently undervalued.
HDFS will continue to originate and service both existing and new consumer loans, but has agreed to sell approximately two-thirds of its annual retail loan originations to the partners for a minimum period of five years. Harley-Davidson will retain control of HDFS.
The motorcycle manufacturer plans to use the proceeds to support demand-driven investments, reduce $450 million of company debt, and return approximately $500 million to shareholders. This aligns with the company’s track record of shareholder returns, including maintaining dividend payments for 33 consecutive years and generating a significant free cash flow yield of 33%.
"This transaction delivers benefits to all of Harley-Davidson’s stakeholders and marks the beginning of an exciting new chapter for HDFS," said Harley-Davidson Chairman, President, and CEO Jochen Zeitz in the press release.
KKR’s investment comes from its credit funds and accounts via the firm’s Asset-Based Finance strategy, while PIMCO’s investment comes from funds focused on private strategies.
The transaction is expected to significantly increase the future return on equity of HDFS while maintaining it as a well-capitalized business and reducing credit risk related to its existing portfolio of receivables.
Harley-Davidson stated that the new structure will allow HDFS to more efficiently grow its balance sheet and operating income over time, following an initial benefit from the sale of existing retail loan receivables and release of loan loss reserve in 2025.
Barclays acted as exclusive financial advisor to Harley-Davidson for the transaction, with Latham & Watkins and Sidley Austin serving as legal advisors.
In other recent news, Harley-Davidson has been navigating a series of notable developments. The company’s first-quarter earnings report exceeded expectations, although it withdrew its financial guidance for fiscal year 2025, as noted by DA Davidson, which maintains a Buy rating and a $31 price target. Meanwhile, UBS has lowered its price target for Harley-Davidson from $28 to $27, citing a potential 13-15% decline in U.S. retail sales in the second quarter of 2025. Citi has reiterated its Neutral rating and $27 price target, highlighting challenges such as tariff concerns, a proxy battle, and the upcoming retirement of CEO Jochen Zeitz.
Additionally, Harley-Davidson has confirmed the election of all nine director nominees at its 2025 Annual Meeting of Shareholders and continues its search for a new CEO. The company has also responded to accusations from H Partners, urging shareholders to support its director nominees and emphasizing the importance of the current board members for a smooth leadership transition. These developments reflect the company’s ongoing efforts to address both internal and external challenges while maintaining its strategic focus.
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