July 25, 2024

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Activist Battling Harley’s Board Urges Focus on Core Riders

(Bloomberg) — The investor pressuring Harley-Davidson Inc. to replace two directors is urging the board to hire a new chief executive officer with marketing chops in a play to rebuild the storied brand.

Impala Asset Management LLC filed documents Wednesday nominating two directors to the motorcycle maker’s board. If it’s successful, the fund has CEO candidates in mind who could take Harley back to basics and focus on the 35-year-old to 60-something American gearheads who buy expensive motorcycles, people familiar with Impala’s thinking said.

That would be a potential revision of the company’s current strategy, which has seen it enter new market segments such as electric motorcycles in the U.S. and low-priced bikes overseas.

In its filing, Impala criticized Harley’s board and former CEO Matt Levatich’s “More Roads” strategy, saying that it hasn’t stopped the company’s sales slide. The hedge fund, which is led by former Soros Fund Management Chief Investment Officer Bob Bishop, wants Harley to spend its resources on marketing and sprucing up its core lineup of chrome cruisers.

One point of contention: Harley hasn’t redesigned its $9,000 Sportster bike in 16 years, one of the people said. The company has brought out low-priced models aimed at the entry-level market.

“That this board has not changed its way is evident,” Impala said in the filing. “Evidence of the board’s resistance to change is seen in its continuation of the ‘More Roads’ plan, which it tells investors is working despite the precipitous fall in retail sales in the years since its unveiling.”

The investment firm also believes the American brand has been tarnished by a series of moves that have alienated its core customer base, including closing its Kansas City plant and moving that work to Thailand, the people said.

Harley-Davidson declined to comment through a spokeswoman. The Milwaukee-based manufacturer’s shares rose as much as 4.3% shortly after the start of regular trading Friday.

‘More Roads’

Harley presented the “More Roads” turnaround plan after being caught flat-footed by competition from more affordable, lightweight bikes as heavy motorcycles like the one Marlon Brando rode in the movie “The Wild One” went out of style. Rivals like BMW, Ducati and Triumph have stolen market share.

The company has two new middleweight bikes, the Pan America and the Bronx, due out in late 2020, that are in the same segment as the Sportster. Its plan also calls for investment in classic heavyweight bikes like the Touring and Cruiser.

The first of its electric bikes, LiveWire, received rave reviews from critics, but its rollout to dealers was delayed in October because of last-minute quality issues.

Harley’s share of the heavy motorcycle market in U.S. has slipped from 50.7% to 49.1% as sales fell by 36,000 bikes, the company said in a filing. Sales in the U.S., its largest market, fell for a fifth year in 2019.

This will be the first proxy fight for Impala, which first invested in Harley-Davidson in 2008.In addition to its own board hopefuls, Impala plans to round out its own slate with company nominees, the firm said in a filing Wednesday. It has yet to say which two current directors it would seek to replace at the company’s annual general meeting, which was held on May 9 last year. It said the company’s board had unanimously rejected its nominees, who are General Motors Co. marketing executive Brent Dewar and Leo Hindery Jr., the chief executive officer of Trine Acquisition Corp.

Leadership Changes

Impala said in the filing it believed changes were needed because the current board wasn’t proactive enough to address the poor performance of the prior leadership team. In 2019, for example, while Harley Davidson underperformed its peers and missed its unit shipping guidance for a fifth year in a row, then-CEO Levatich was paid more than $11 million in compensation — more than he had been paid in any year since taking over in 2015. Impala said its agitation was influential in the firing of Levatich.

The fund also criticized the appointment of a long-standing director, Jochen Zeitz, as acting CEO and president and his compensation package of as much as $8.5 million.

Impala said the board needs “fresh eyes” to look at its “More Roads” strategy to determine whether “it should be maintained, significantly altered, or scrapped.”

Impala, which was founded by Bishop in 2004, manages a concentrated portfolio of companies in basic industries such as autos, capital goods, basic materials and energy. Bishop has owned four Harleys including a Softail Breakout.

(Updates with shares in eighth paragraph)

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