Synergies Drive Hero/MIFA Marriage
SANGERHAUSEN, Germany – Mitteldeutche Fahrradwerke, the German-listed maker of traditional and electric bicycles known as MIFA, announced this week that negotiations are ongoing with India’s Hero Cycles that would see the sub-continent’s largest maker take a minority stake in the Sangerhausen-based company.
A release issued via MIFA’s investor-relations consultancy in line with rules on transparency set by the Prime Standard of the Frankfurt Stock Exchange, where MIFA shares trade – was scant on details. However, MIFA officials confirmed that discussions are ongoing and agreed with analysts that the tie-up offers benefits ranging from market access to production efficiencies.
‘Long-lasting and intensive partnership’
“As partners, Hero and MIFA can highly benefit from the respective other.” MIFA ceo Peter Wicht said in an email, stressing that the shareholding is unrelated to an announcement earlier in the week that MIFA likely will seek some € 25 million via a bond issue. “I cannot talk about details yet. But I can imagine that it is going to be a long-lasting and intensive partnership.”
With sales reportedly in excess of € 1 billion, Hero Group including Hero Cycles fairly dwarfs MIFA, which turned over € 110 million in 2012 amid rising sales of e-bikes in core European markets. In addition to traditional bicycles, privately held Hero Group and Hero Cycles—based in the Punjabi city of Ludhiana—has both electric bike and motorcycle divisions, as well as interests in information technology and financial services. Officials at Hero Cycles could not be reached for comment.
Desire to expand international reach
Interest in MIFA is being driven by a desire both to expand its reach in international markets, as well as to boost offerings at the upper end of the product range offered for sale via its network of more than 2,200 dealers in the domestic market, according to sources close to the negotiations. Next to that Hero is searching for a production location in Europe for producing its A2B e-bikes. Hero Cycles bills itself as the world’s largest manufacturer, producing more than 5 million units annually.
MIFA to source at Hero
The link would allow MIFA to source frames and semi-manufactured bikes from Hero Cycles that could be fully assembled at Sangerhausen for sale in European markets. Opportunities also could arise from a know-how transfer, particularly of the automated production techniques that allow MIFA to produce around 5,000 bikes and e-bikes per day at a unit cost of around € 18.
Buy rating for MIFA shares
Analysts, including Philipp Rigters, who covers the stock for Frankfurt-based Equinet Bank, applauded the news. In a research note issued shortly after the announcement, he called the tie-up ‘reasonable’ and in line with MIFAs strategic shift into the sales of higher-margin bikes and e-bikes and reiterated a buy rating for MIFA shares up to € 9.30. Shares were trading in Frankfurt at € 7 in the wake of the news, down from a 52-week high of € 8.27.
Diversifying funding options
MIFA in 2012 purchased Berlin-based Grace – maker of the Smart e-bike for automaker Daimler – and Munich-based Steppenwolf – a high-end mountain bike brand – and has increased production capacity at Sangerhausen to accommodate those offerings. The bond issue—which also is in preliminary stages—is aimed at diversifying its medium-term funding options, the company said.