Tell me this is late April Fools

[Scott]

Some more details: http://www.bizjournals.com/milwaukee/news/2015/04/ 15/erik-buell-racing-shutters-east-troy-plant-file s.html

---

quote:
Nixon [attourney for EBR] said the goal will be to find a buyer who will continue the motorcycle business. Bids will be solicited as part of the legal process, with the court to determine the winning bid.

---

That puts a number on the debt - $20 million - and that may have been Hero's red line. It would make sense since they paid $20 million for half of the company. Once the debt hit that limit something had to give.

It also gives us something to think about in a bid scenario. Imagine Polaris (again completely hypothetical) bids $40 million. In very simple terms (and I'm sure it's more complicated than this) $20 million would go toward the debt and Hero and Erik would each walk away with about $10 million. If Hero bid $50 million, they'd be paying Erik and themselves (after debt) about $15 million each, so they would only have to put out $35 million. That gives them an advantage over anyone else who is bidding.

It also illustrates that if the bidding gets crazy (lets say someone bids $90 million) Hero could walk away with $35 million and actually have made money on their initial investment (I don't think that will happen. I'm just throwing it out to illustrate).

With that dynamic in mind, it's at least possible this is somewhat amicable and Hero has a number they'll go to and if someone outbids that number they'll walk away happy with the money they'll keep (while getting out from under the $20 million debt). And if they have decided to go this way to see what happens, they may still be willing to work with Erik after everything is done (and they own the company outright).

It could be a lot simpler than I've been imagining and just a way to sort out who walks away with what, and if the company on the open market might be worth more than Hero thinks it is.

[Hughlysses]

That's an interesting way to look at it, and it seems at least as plausible as anything I've read.

[Scott]

Warning, for entertainment purposes only, here's what I think is happening and what led up to it. There are some facts, but a LOT of speculation, so take it with a grain of salt, but I'm just trying to piece everything I know together.

Ever since Hero bought 49% of the company, they've had their eye on the other 51% (they haven't made any secret of that and it's well documented).

But Erik was absolutely determined, after his experience with Harley, to not give up control and be pushed aside again.

Starting a motorcycle company is very difficult and very expensive. A lot of time and money has to be put into research, development, testing, certification etc. etc. etc. before any money is coming in the door.

Once a product is ready, it still takes time. Dealers need to be cultivated and developed (and the bad need to be weeded out from the good), people need to learn about the bike and know that it's available, and even those who know all about it are going to be reluctant to buy a bike from a company that might not be around in a few years.

Most companies start with very exotic, expensive bikes so that they can make money with a small crew selling a small number of bikes at a high price, but Erik didn't have time for that. He needed to get up and running quickly because he wanted to go superbike racing and he needed a minimum number of units to do that. Also, larger volume means lower cost, so he pushed to build a lot of bikes before the market was really demanding them - pushing on a string.

Sales were slow and debts were building up. The Superbike racing wasn't going well, and it wasn't generating as much attention as they needed to really get off the ground.

Hero likely made several offers to buy Erik out, but he didn't want to give up control. Hero realized with each passing day, his options became fewer and he became more desperate, so those offers shrank.

Erik tried to borrow more money to keep things going, but he couldn't get anyone to take the risk. Things were looking very grim.

It was clear to both Erik and Hero that something would have to break. Hero wasn't offering any more cash to prop up the failing company because they wanted ownership and cash would only come after they had ownership (and lack of cash would be a motivation for Erik to sell).

Erik likely approached potential investors who might like to buy the company if it were for sale and he likely found a few who might be interested if the price was low enough.

That gave him one last hope. If he could get someone else to buy it in combination with him putting some of his own money into it so he could maintain some ownership, he could still own a part of the company.

Receivership is not required by Chapter 128, but Erik has three of five votes on the board, so it would have been his choice to go into receivership.

Hero likely would have done this the easy way, but Erik is forcing them to do it the Hard way and they must now bid against potential other entities . . . but they have the cash and they want it and they're confident they'll get it (as evidenced by Larry Pegram's recent comments that this is just a reorganization and he has 'assurances' that it will work out).

Ultimately, I think Hero will own the company and move forward continuing to make EBR motorcycles, but there could be some drama before that happens. It's still possible someone else could buy it, and I believe that's what Erik is hoping for, but I think Hero will be willing to pay more than anybody else and they'll get it.

[zviadi]

My opinion - for nothing Eric decided to participate in WSBK. It is too costly event. How many years of the Ducati didn't get anything with the 1199? How many years was made by BMW and what made? But it is the large corporations... And Eric's second year of existence of the firm decided to crawl over to where beaten by large corporations. His motorcycle was raw - it was early to put on a race at the international level.
Full of motorcycles, not participating in the races. They will not become worse.
I wish he increased build quality of its products...
With all due respect to the talent of Eric as a developer - do not pull his motorcycle price niche, which is a Panigale, RSV4 and S1000RR. Especially in design.
Everything must be brought to an end, should not be protruding fasteners and falling off from vibration silencers. This is top segment, everything should be nice and clean.

[mackja]

This article on SBK site seems to say this is going to get worked out!
http://www.worldsbk.com/en/news/2015...ng+EBR+closure

[Scott]

My opinion - for nothing Eric decided to participate in WSBK. It is too costly event. How many years of the Ducati didn't get anything with the 1199? How many years was made by BMW and what made? But it is the large corporations... And Eric's second year of existence of the firm decided to crawl over to where beaten by large corporations. His motorcycle was raw - it was early to put on a race at the international level.
Full of motorcycles, not participating in the races. They will not become worse.
I wish he increased build quality of its products...
With all due respect to the talent of Eric as a developer - do not pull his motorcycle price niche, which is a Panigale, RSV4 and S1000RR. Especially in design.
Everything must be brought to an end, should not be protruding fasteners and falling off from vibration silencers. This is top segment, everything should be nice and clean.

I generally agree with your points, and I think fit and finish should have been better and the price a little lower, but I don't think those were the primary problems. These are exotic unique and rare bikes - unlike anything else on the road. When people buy a product like that, they expect to pay a little more for the exclusivity and maybe deal with some things that are a little 'rough around the edges'.

Consider a Lotus Elise vs. a Camaro. The Elise is going to be rough and uncomfortable and you might have bolts in awkward places that don't seem right. One could argue that the Camaro is a much better car by most measures, but the Elise is exotic and unique and unlike anything else on the road, so people will pay more for it and technically get a little less. The EBR should have been marketed like that so that it wasn't going up directly against the big-selling bikes. Eventually, as sales grew, EBR could work to refine things and improve those details.

I believe the big problem was a lack of investment by Hero (and I've already expressed that I think that lack of investment was very intentional). Last year was their first real year of sales. If Hero's primary goal was to get this brand going, they should have planned to fund the effort for a minimum 3 years of sales. That means they should have been willing to accept a loss until the end of 2016.

It's spring and there are a lot of EBR's out on dealer floors. The Superbike team will be doing better and (without this weeks announcement), EBR would have looked like they were here to stay and that would have encouraged people to go out and buy. I have almost no doubt that sales would have grown through this year and 2016 to the point they would have been a real, viable company going into 2017.

But I've already said Hero didn't want that, and I honestly believe it.

But let's step back a moment as the internet mourns and think about what's really likely to happen in the coming months.

I've already said I think Hero will buy them and keep things going (as much as possible) as if nothing ever happened. But what if they don't?

Let's imagine that Hero is completely done and cutting ties and not interested in EBR in any way. In that case, I would guess the physical assets EBR holds is probably worth about $3 million. So nobody who doesn't want to continue the business will bid more than that.

That means Erik Buell could buy the company for $4 million and nobody would stand in his way. I suspect he could swing that with some help from some friends. There's still that $20 million debt hanging out there, but that's manageable. They've got a product to sell and inventory and they can scale way down so their operating expenses are much smaller and start working down that debt. And with the restructured, leaner company, he could probably get a credit line with the company put up as collateral and Hero no longer in the way.

I absolutely don't think that will happen. I think if the company goes for $4 million, Hero or another motorcycle manufacturer will be the one buying it, but I'm just illustrating that the reports of EBR's death are being greatly exaggerated. We have to wait and see exactly how this shakes out, but I am as close to certain as I can be that the company will continue.

[Scott]

This article on SBK site seems to say this is going to get worked out!
http://www.worldsbk.com/en/news/2015...ng+EBR+closure

Yeah, I saw that and I think it's the clearest evidence that this isn't over we've seen. Erik may be done, but I kind of doubt even that. Even if Hero and Erik hate each other after all this, I suspect they'll recognize his PR value and keep him on in some capacity.

Let's just calm down and see how this goes and stop talking about EBR in the past tense because I simply don't think that's the case.

[Scott]

Anybody who really thinks EBR is done, think about this for a moment:

Was the company worth more two years ago when Hero paid $25 million for 49% or now?

I'd say they're worth more now. So with that in mind, will they be sold off for parts at $3 million, or will somebody be willing to pay the $24 million it would take to buy the company, pay off the debt and be up and running with the only US sportbike manufacturer in the world?

[Hughlysses]

Scott- I think your scenario above must be pretty close to the truth. It occurs to me that things may have gone a step farther, like Erik saying "OK, I'll sell if you agree to keep the East Troy factory open and keep these people employed", Hero balks at that, and Erik says, "OK, I'll play hard ball."

One of the articles on the current situation quotes the lawyer in charge of the receivership as saying the intent is to sell the company intact. No guarantee that will happen, but that's the intent.

Here's another interestesting tidbit, from an Indian site: http://economictimes.indiatimes.com/...w/46952124.cms

I thought this comment was interesting:

The investment it [Hero] made will be "pared down over a period of time", a top company executive said on the condition of anonymity. He declined to elaborate.

If true, I wonder what that means? With EBR in receivership, it would seem Hero either has to buy the whole company or take their share of the cash from the sale and walk away.

[Hughlysses]

Something else this reminds me of, the Mahindra diesel pickup fiasco of ~5 years ago. Indian auto (and tractor) maker Mahindra planned to import cheap, simple, small diesel pickups to the US. Similar in size and technical sophistication to early 70's Japanese pickups. A US dealer network was setup through a US importer, and quite a few dealers invested thousands of dollars. The contract language between Mahindra and the importer basically said Mahindra would attempt to get their trucks to meet US regulations (EPA, DOT, etc.) and if they could, the trucks would be imported to the US. If they couldn't get the trucks to pass by ~July 30, 2010, both parties could walk from the deal. Well, Mahindra went through all the testing and their trucks passed before the deadline, but they chose not to submit the paperwork requesting the formal approval. When July 30 (whatever the date was) they said "Oh well, the deal is off." It seems that the trucks met all the regs but fuel mileage was much worse than promised (24 MPG vs ~30 MPG, and for a small pickup) so Mahindra decided their trucks wouldn't be worth importing. The US distributor and the dealers were screwed. Here's one follow-up story on this debacle: http://www.autonews.com/article/2013...rs-win-a-round

I wonder if something similar didn't happen with EBR and Hero? At the RX introduction 2 (?) years ago, it was said Hero models would be sold in the US through EBR dealers starting in 2014. Perhaps Hero strung EBR along with the promise "You design better bikes for us, and we will import those to the US so you can offer a full line up at your dealers." Hero decides the US is not a viable market, and never fulfills this agreement. EBR is left in a bind with no lower end motorcycles to sell, and projected profits never occur as a result.

Hmmm....