MotoMatters.com | Kropotkin Thinks

There are more financial problems building for KTM's parent company Pierer Mobility AG. According to the excellent and comprehensive reporting of Gerald Dirnbeck at Motorsport-Total.com, several things have happened.

• The administrator appointed to oversee the bankruptcy proceedings has forced PM AG to sell its holding in MV Agusta
• Pierer Mobility Group has called in the assistance of Citibank to help with an "ownership restructuring" and find financing
• Austria's Financial Market Supervision authority has opened an investigation into whether the Pierer Mobility Group informed investors in a timely fashion about its financial problems
• 50 more jobs at risk at KTM

Sale of MV Agusta

Although the three PM AG subsidiaries (the motorcycle business KTM AG, KTM Components, and R&D arm KTM F&E) have applied for bankruptcy protection under Austria's self-administration scheme, meaning that the current board can continue to run the three companies involved, the court-appointed insolvency administrator has demanded that KTM AG sells its shares in both MV Agusta (the motorcycle manufacturer) and MV Augusta Services (the services arm).

KTM AG owns 100% of the shares in MV Agusta Services and a 50.1% stake in MV Agusta. KTM had expanded its stake in MV Agusta earlier this year, when it prematurely exercised an option to take a majority holding. The original agreement had KTM scheduled to take a majority stake in MV Agusta in spring of 2026.

How much money is involved in this is not clear. In the announcement of the purchase, made on March 15th of 2024, the price was given as an "EBITDA multiple", or a multiple of MV Agusta's earnings. The previous 25% stake had been acquired for less than €43 million, according to the Pierer Mobility Group's 2022 financial results.

So the sale of MV Agusta is unlikely to make a huge dent in KTM's mountain of debt (€2.74 billion). Like KTM, MV Agusta is sitting on a pile of unsold bikes, around 2000, according to Italian website Varese News (Varese is where the MV Agusta factory is located). MV expects to manufacture 3000 bikes in 2025, according to a statement.

However, the fact that the insolvency administrator considers it a necessary step is an indication of where KTM stands and how serious the problems are.

Seeking more money, and restructuring ownership

If KTM and the other components in the Pierer Mobility Group are to survive in its present form, then the group desperately needs more money. Stefan Pierer has been attempting to find investors willing to cover a financing shortfall in the hundreds of million euros range, need to repay a loan of €247 million which was the trigger for PM AG's collapse, but so far, to no avail.

To that end, the group has called in Citigroup, to help find investors and to help with restructuring the ownership of the group. The aim is to use any finance raised primarily to help save motorcycling division KTM AG. The release announcing this appears below:

PIERER Mobility AG appoints Citigroup Global Markets Europe AG to reorganize its ownership structure

PIERER Mobility AG is currently in talks with potential strategic and financial investors. These include both existing partners as well as new strategic and financial investors.

Citigroup Global Markets Europe AG was appointed today to support this process in a structured, transparent and efficient manner in the interest of all stakeholders.

The objective of the investment process is to have investors subscribe to a necessary cash capital increase or financial instruments of PIERER Mobility AG. These funds will be used to strengthen the PIERER Mobility Group, in particular KTM AG.

In order to finalize the structured investor process, it will be necessary to convene a shareholders' meeting in due course to pass the relevant resolutions.

What this means in practice is that Pierer Bajaj AG, which owns 74.9% of Pierer Mobility AG, is looking at changing the ownership structure of PM AG. The change in ownership structure which would require the approval of the shareholders at an extraordinary shareholders' meeting is the issuing of new shares, which would not only dilute the holdings of both Pierer Industrie AG and the Bajaj Group, but also of the 25% of shares traded on public markets.

If that is what Pierer actually does intend to do, then it will be interesting to see just how much control Pierer Bajaj AG would be willing to give up. The current market capitalization (the value of the shares currently traded on the Zurich stock exchange) is around CHF 346 million (down from around CHF 3 billion in early 2023), or approximately €370 million. That would put the total value of PM AG at just under €1.5 billion.

To raise the kind of sums needed to make a substantial dent in PM AG's debts, Pierer Bajaj would have to both sell something in the order of a 25% stake in the company, and get a price for the shares at above the current market rate. That is perhaps why the Ad hoc statement speaks of seeking 'strategic and financial' investors. That sounds like they are looking for partners, rather than just loans.

The risk of seeking such a major investment is that Stefan Pierer could end up losing control of KTM. Pierer, through Pierer Industrie AG, has a 50.1% stake in Pierer Bajaj, which in turn has 74.9% of Pierer Mobility AG. Any significant dilution of Pierer Bajaj would quickly see him losing a controlling stake, and risk being outvoted at shareholders' meetings.

The dilemma which Pierer faces is that without significant financial input, KTM could end up going to the wall entirely, and being sold off to someone else for a pittance in a bankruptcy settlement. This looks like a step toward control of KTM slipping out of Stefan Pierer's fingers.

Austria's Financial Market Supervision authority investigating possible insider trading

Worse news for Pierer Mobility AG is that Austria's Financial Market Supervision authority is investigating a failure of PM AG to properly inform shareholders of KTM's financial problems. Publicly traded companies have a duty to inform shareholders and the markets of any changes in its financial situation. The laws are in place to prevent insider trading.

According to reports from Oberösterreich Nachrichten, the Financial Market Supervision authority (or FMA for short) is investigating the publication period between May and November 2024, when KTM's financial problems became clear, and before PM AG filed for bankruptcy protection for its three subsidiaries.

If PM AG is found to have breached the rules on informing investors, it faces a range of punishments. For insider trading, those punishments can be fines or as severe as prison sentences. But if, as seems likely, this proves to be a failure to inform markets in a timely manner, it is more likely that Pierer Mobility AG would be issued a fine. If the FMA can prove that board members, including CEO Stefan Pierer was involved in decisions to delay reporting, then those board members could also be personally fined.

More jobs to go

In a further blow to KTM workers, another 50 people are to lose their jobs, bringing the total to 800, according to Austrian broadcaster ORF. This has caused a further loss of trust in KTM by the unions and employee representatives.

In a statement issued by the Arbeiterkammer, the employees representative body in Austria, the AK and labor unions PRO-GE and GPA said that they had stopped believing statements by the company. Worker representatives said that they would "no longer be relying on announcements, but only responding to facts from now on." Their mission, as they saw it was to "save everything that can be saved," which meant trying to save as many jobs as possible.

What does all this mean for KTM Racing?

We will know far more about what this all means on Friday, when court-appointed insolvency administrator Peter Vogl makes his first report to the court in Ried in Innkreis, Austria. There, we will get an idea of how realistic the Pierer Mobility AG's debt restructuring proposals are.

In theory, KTM's racing project should be unaffected. Factory Racing AG is a separate company under the Pierer Mobility AG umbrella, and has not been included in the insolvency proceedings. The problem, of course, is that much of KTM Racing's revenue comes directly from KTM AG and the motorcycle brands it represents.

KTM rising star Pedro Acosta and his manager, Albert Valera visited KTM's headquarters in Mattighofen, Austria on Tuesday to speak with senior figures in KTM's racing program, including motorsport director Pit Beirer, according to Motorsport.com's Oriol Puigdemont. They came away somewhat reassured, Valera told Puigdemont. "Despite the delicate situation that the company is going through, the feeling is positive," Valera said.

Acosta and Valera were assured that racing is at the core of KTM's DNA, and was an essential part of both their brand identity and their marketing arm. Although Valera admitted it was unrealistic not to be worried by the current situation, Pedro Acosta had left the meeting feeling "relieved and confident".

Is Acosta right to feel confident? If KTM's racing program is to survive, there are two paths it can pursue.

The first and most obvious one is for the Pierer Mobility AG to persuade the insolvency administrator of the importance of racing as part of KTM's marketing. Though the financial figures for PM AG do not show exactly how much they spend on KTM Racing, but KTM Racing's budget is believed to be more than €70 million.

Sponsors such as Red Bull contribute a significant part of that, and so how much KTM AG contributes may be small enough for it to be an acceptable amount to the insolvency administrator. KTM AG's revenue for 2024 is likely to by just shy of €2 billion, so an expenditure of perhaps €40 million may be viewed as acceptable.

Given KTM's very strong focus on racing in the brand - apart from the slogan "Ready To Race", the company's financial reports are littered with references to 'KTM - The Racing Brand' - a good case can be made that racing is integral to KTM's identity. But ultimately, that is a decision the insolvency administrator will have to make.

The second, and perhaps more likely outcome is that Red Bull step in to purchase Factory Racing AG from KTM and run it as a separate concern. That would allow the racing arm to continue, while reducing KTM's cost base.

This has already happened once. In 2004, Red Bull took over the Jaguar Formula 1 racing team, when Jaguar's owner Ford had to cut jobs and felt they were not getting enough of a return on investment from their involvement in F1. Given Red Bull's very strong involvement in all of KTM's racing activities, it would be a very small step for them to buy out KTM Factory Racing completely.

But all of this is speculation. We should have a much clearer idea of what is happening after the insolvency administrator gives his first report to the court on Friday morning.

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