Warren Buffet rides Harley Davidson home

By abhishek at 26 February, 2009, 4:01 pm

Later this year, a bunch of us plan to visit Ladakh either on bikes or in a 4X4. We are hoping to get a fortnight off from work, and vroom away sometime in August. Before traveling to any place, I have this compelling (some say, annoying) urge to scour the internet about that place. While researching for Thunderbirds and Enfields, one link led to another and I happened to stumble upon a few articles on the mother of all power bikes – the Harley Davidson. I meandered through some exciting stories on The Harley Owners Group (HOG), the niche audience which popularised the cult status of Harley Davidson. But what caught my eye in the Google News section was that the bike maker was pulling through its last quarter in first and second gear barely managing to survive. It posted a 58% decline in fourth quarter profits and now plans to clip 12 per cent of its workforce i.e. another 1100 people wouldn’t know how to start their day.

The only person who must be making money in all the turmoil is Warren Buffet. Do you recall the bloodless coup that he pulled off with Goldman Sachs not so long ago where he invested some $5bn in the sinking investment bank? He also convinced them to pay him 15 per cent dividends every year on that amount. It didn’t end there. Since he bagged preference shares of that amount, in the event Goldman liquidates or declares chapter 11 bankruptcy, Buffet would have ‘preference’ over other shareholders to get his $5 billion back. And with Harley, Buffet has pulled off another investing beauty.

Along with David Selected Advisors, Harley’s largest shareholder, Buffet has bought bonds worth $300 million. In simpler words, Harley issued bonds (paper) and in exchange, Buffet infused $300 million in the company. And why this largesse? Because Buffet, will be entitled to receive a 15 per cent annual interest rate on his investment. This rate is twice the industry rate of return on normal corporate debt in the US. (And if that amount is compounded, his principal amount doubles at the end of 5 years!)

Well, hats off to this septuagenarian who lives like a common man and drives his own car. Wonder what drives that man to keep going!

Well, I’m back to hunting more on the Indian Harleys – Enfields and Thunderbirds for our terrain trip to Ladakh!

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