Pierer Mobility AG, the parent company of KTM, is facing challenging times.
Despite having some of the finest motorcycles available, including one that I continually dream about and search for in classifieds weekly, the brand's market share has significantly declined in recent years. This decline is due to clear reasons like current interest rates, stagnant wages, a tumultuous global situation, and plummeting consumer spending, along with other macroeconomic factors such as parts shortages, extended lead times, manufacturing problems, and more.
After reporting that the brand is looking for a significant cash infusion of several hundred million dollars, KTM AG, which encompasses the group's motorcycle brands (Husqvarna, KTM, GasGas, and the recently acquired MV Agusta), has now submitted a filing to restructure its business to prevent impending insolvency.
KTM has announced that it has entered "self-administration" with the aim of restructuring its business in the upcoming months. In their press release, KTM mentions, "Having expanded from 160 employees and a production volume of 6,000 units in 1992 to a capacity of up to 1,000 motorcycles daily, KTM is now encountering major challenges. To tackle these, KTM will start a legal restructuring process with self-administration. The application is set to be filed on Friday, 29 November, with the objective of completing the process within 90 days."
"The key is that businesses facing the risk of insolvency, but not yet insolvent, can economically recover through judicial restructuring proceedings before filing for insolvency," reports the media outlet. It further notes, "This procedure is applicable only if insolvency is imminent or likely soon. To prepare for this, the entrepreneur needs to create a restructuring plan, credibly outlining how the company's future operations will be secured and what actions are intended for this purpose. The plan must be approved by the creditors involved by the debtor."
In summary, the goal of this restructuring is to lower the company's debt. However, achieving this will be challenging, as the net debt, which was about 300 million euros two years ago, has surged to an enormous 1.5 billion euros over the past two years. This increase is partly due to Pierer's acquisition of MV Agusta, which became part of the KTM family earlier this year. There are additional contributing factors as well.
In light of the restructuring news and significant debt, Pierer's stock price has plummeted, further damaging the company's prospects. As reported by Bloomberg, "Shares slumped 45% to 6.9 Swiss francs ($7.8), marking their largest daily drop on record and extending this year's loss to 84%." This doesn't account for the substantial drop in sales or the accumulating inventory in dealerships worldwide.
Nevertheless, co-CEOs Stefan Pierer and Gottfried Neumeister tried to present a more optimistic view than I would have. "Over the past three decades, we have grown to become Europe's largest motorcycle manufacturer. We inspire millions of motorcycle riders around the world with our products," Pierer stated, adding, "Now we are taking a pit stop for the future. The KTM brand is my life's work, and I will fight for it.” It is reassuring to hear that he is committed to fighting for the company, its brands, and its workforce.
When I contacted KTM for more information about the restructuring and insolvency plan, a company representative mentioned that they would not provide additional comments on the plan. However, they assured that KTM North America and other KTM subsidiaries are not impacted. "North America and all other KTM subsidiaries are not included," they stated. From my understanding of Pierer Mobility AG's structure, KTM AG encompasses all the motorcycle brands, such as GasGas, KTM, Husqvarna, and MV Agusta. It's puzzling to me how this restructuring plan wouldn't affect KTM in North America or any other subsidiaries, so I sought further clarification.
How this situation unfolds is uncertain, but I suspect my earlier prediction of KTM being acquired from Pierer is increasingly probable. More so than it seemed a week ago. However, only time will reveal the outcome. The one scenario I hope doesn't happen, and which I find unlikely, is KTM disappearing. Someone will purchase it, whether that's Bajaj or another financially strong entity.
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