Polaris Industries Inc. announced July 19 that it will purchase a 24-percent interest in Austrian motorcycle manufacturer KTM Power Sports AG, formerly known as Cross Holding AG, and partner with KTM on several important strategic projects. The goal of the partnership is to strengthen the competitive position of both companies and provide tangible benefits to customers, dealers, suppliers and shareholders.
During the first phase of the partnership, each company will continue to be run separately, but will work together on several specific cooperative projects involving new product development, engine technology sharing, distribution, manufacturing, and purchasing. The initial phase of the partnership will last approximately two years. In addition to the cooperative projects, Polaris will purchase a 24-percent stake in KTM Power Sports AG from an institutional investor for 66.6 million Euros or approximately $80 million funded from Polaris’ existing bank line of credit arrangement. This represents approximately a 12 percent discount to the market value of the shares purchased reflecting the size of the block of shares purchased and the fact that the shares are thinly traded. KTM Power Sports AG (formerly known as Cross Holding AG, which is publicly traded on the Vienna Stock Exchange under the symbol CRO), owns and controls KTM Sportmotorcycle AG, a European manufacturer of motorcycles with fiscal year 2004 revenue of more than 400 million Euros.
Over its history, KTM has earned a reputation for providing class-leading, ready-to-race, off-road motorcycles, and recently has entered the on-road motorcycle segment. This transaction,
subject to customary closing conditions and regulatory approval, is expected to close during the third quarter of 2005. The actual number of shares purchased and the purchase price are subject to reduction depending upon the number of shares of KTM Power Sports AG outstanding on the closing date.
Polaris CEO Tom Tiller is expected to be named to the KTM
Supervisory Board after the closing date of the transaction. KTM CEO Stefan Pierer is expected to be named to the Polaris Board of Directors after the closing date of the transaction. The investment in KTM Power Sports AG is expected to be neutral to calendar year 2005 Polaris consolidated earnings per share and somewhat accretive for the full year 2006. There are no changes in employment anticipated at either company as a result of this announcement.
Additionally, Polaris and KTM Power Sports’ largest shareholder,
Cross Industries AG (“Cross”), have entered into option agreements which, under certain conditions in 2007, either Cross may purchase Polaris’ interest in KTM Power Sports AG or, alternatively, Polaris may become the majority shareholder of KTM Power Sports AG. In the latter case, the majority of the purchase price to Cross will be settled in Polaris shares and Cross will become a significant shareholder in the combined Polaris/KTM organization. Cross’ principal shareholders are KTM CEO Stefan Pierer and KTM CFO Rudolf Knünz. The exercise price under both option arrangements are based on market-based, predetermined pricing formulas to be derived from operating results of both companies in 2007.
“I believe this partnership will provide substantial benefits to both Polaris and KTM, and both company’s dealers, employees, suppliers and shareholders for many years to come,” said Tiller. “We have long admired the success of KTM, and are excited about working together to strengthen both companies. Polaris can benefit from KTM’s substantial experience in motorcycles, an outstanding brand, leading technology, and a solid manufacturing presence and dealer network in Europe. Moreover, this relationship complements nearly every aspect of Polaris’ five-year strategic vision, which is a roadmap to make Polaris the most dominant brand in the powersports industry. Further, we believe the two-step approach we have outlined significantly lessens the cultural and execution risk associated
with a partnership of this magnitude.
“In essence, this partnership combines the substantial strength, passion, and success of two industry leaders with very similar, successful 50-year histories, but who do not compete directly today. It is a very natural fit for both of us,” added Tiller.
Mr. Pierer commented, “Polaris and KTM complement each other very well, and we are very excited about our new relationship. By joining forces, we believe we can strengthen KTM’s presence in North America, reduce our production costs, spread our development costs over a larger base, and substantially accelerate our entry into the ATV business. We also look forward to sharing both chassis and engine technology with Polaris. The KTM and Polaris teams should work well together – both companies are driven by innovation, passion, and demand success.”