Copyright 2004, Roadracing World Publishing, Inc.

FIRST PERSON/OPINION

By Bob Holcomb

The recent press release announcing that Ducati Motor Holdings (DMH) is offering to acquire a controlling stake in Aprilia frightens me. I am hoping that whatever combination is cooking dies a quick death. Should it not, I fear the great Ducati marqué will not survive. Let me frame my remarks by assuring you that I am a Ducatisti. I love Ducatis. I have two and am considering a third (the Mutistrada, of all things). I even think their new Superbikes are better then the 916-based collection, and even more deserving as an artistic benchmark.

The statements released by the CEO of Ducati are certainly passionate, but they strike me as delusional. The very first comment states that Ducati is not a financial investor. That they are moved by passion and dedicated to the long term success of Italian bikes worldwide. Then he goes on to profess that success will depend on how well they preserve brand individuality, respective markets, manufacturing locales, and their respective histories. He also brings up the classic B school notion of scale economies though combination. As sort of a validation, the CEO refers to their success in turning around Ducati.

1. With all due respect, Ducati is in fact a financial investor. They are a publicly owned business and all management performance is measured and priced by their owners every single trading day. The public stockholder is a ruthless and transient master. He absolutely requires financial returns. Anything otherwise is best left to private companies (which DMH should probably be). Since DMH isn’t private, they are relentlessly pressed to deliver financial performance quarter over quarter. If they fail, they eventually lose access to capital and die. To the capital markets, all that other stuff like ‘passion’ etc. is just rhetoric.

2. Case histories suggest the notion of preserving product and market individuality is certainly an important ingredient to successful brand combinations. However, it is no easy task. Moreover, it flies in the face of the concept of synergistic or scale gains. Few have carried it off.

3. Importantly, Ducati is not yet a successful turnaround. I understand that their VC is still stuck in the deal, which I suspect was not their plan when they made their investment. While Ducati has made incredible strides on most fronts, it has only been us Ducatisti that have been truly rewarded so far (and we are a pretty small group). The notion of bailing a bleeding scooter company seems ridiculous to me.

4. Regarding the claimed commercial advantages of Italian motorcycle consolidation; that must be some sort of government pitch. In fact, a lot of the statement seems more like government speak then business speak.

Perhaps the whole offer is being fostered by a government desire to preserve Aprilia for national pride. Or maybe it’s a deal promoted to get Aprilia’s lenders out of their jam. Maybe it is both. But it is not a plan to reward investors.

Ducati is a small company. They are marginally in the black and they struggle to produce unit sales growth. The Ducati market seems to be topped at around 40,000 units a year. If that’s the reality, acquiring brands that bring them new market segments is a sound solution for renewed growth. At the right price, Aprilia’s Guzzi line might make sense. It seems a bite-size fit and Aprilia has already sunk a fortune into nicely updating it. The heavy lifting has been done, so if DMH can take Guzzi at a steep discount, it is probably worth the risk. But to take over the entire Aprilia company is suicide. When manufacturing complexes go upside down, they eat cash every single minute they operate. If DMH were given Aprilia for free, I fear it would still sink them. It is just too big and complicated for their little balance sheet and small staff to handle. Just too many leaks and not enough patches in the tool box. I say assign Aprilia to somebody else.


Bob Holcomb is a managing executive with a prominant U.S. investment firm. His son, Gus, is a racer…Editor.