Harley-Davidson Inc. shareholder Impala Asset Management LLC filed a proxy statement in which it says former CEO Matt Levatich was fired shortly after the hedge fund expressed its concerns over the management direction of the company.
Harley-Davidson announced Feb. 28 that Levatich stepped down as president and CEO of Harley-Davidson (NYSE: HOG) after mutually agreeing with the board that “now is the time for new leadership at Harley-Davidson,” according to a press release at the time. Levatich joined Harley-Davidson in 1994 and held positions of increasing responsibility in the U.S. and Europe. He took over as CEO in May 2015.
In the filing, New Canaan, Connecticut-based Impala Asset Management said that during Levatich’s tenure, Harley-Davidson lost market share in nearly every geography and experienced significant declines in motorcycle revenue, margins, cash flow and returns on capital.
Impala blamed the years-long decline in Harley-Davidson sales on new product launches and changes in the manufacturing footprint, specifically the closing of the Kansas City plant, and other factors like marketing and “compensation metrics that misaligned incentives.” Impala says it believes that during this time, “customers, employees and dealers became increasingly disaffected” with the company
Impala describes itself as an investment management firm that invests in global cyclical equities. It is run by management director Robert Bishop, whose career includes years as an analyst for manufacturing, commodities, transportation, energy and other cyclical industries, according to Institutional Investor.
The hedge fund first invested in Harley-Davidson in 2008 and has owned an average of about 2 million shares since. Impala said in recent years, it had grown concerned about the leadership and strategic direction of Harley-Davidson.
“As long-term shareholders of Harley-Davidson, we are enthusiastic about the Harley-Davidson brand, products, employees and dealers,” Impala said in the proxy statement. “However, execution failures and lack of accountability have led to years of operational and stock price underperformance.”
Impala has little history of activist investing and at times has divested itself of investments in Harley-Davidson, most recently as of the end of the third quarter of 2019, when it reported no holdings of Harley’s stock on its 13F-HR filing, a quarterly report of an institutional investor’s holdings.
According to CNN Money, Impala bought all of its current holdings, about 1.9 million shares, on Dec. 31, 2019, which falls short of the top 10 investors in Harley-Davidson’s common stock. The largest investor is The Vanguard Group Inc., of Valley Forge, Pennsylvania, which holds more than 11% of Harley’s outstanding shares.
In a timeline of events presented by Impala, the hedge fund has interacted with Harley-Davidson management over the years, but on Jan. 24, 2020, it sent a four-page letter expressing its concerns and indicating its lack of confidence in Levatich.
Impala subsequently met with shareholders and executives to further detail its concerns and on Feb. 25 met with then-board chairman Michael Cave and independent board member Thomas Linebarger, who told Impala of their decision to “terminate” Levatich. The board later rejected Impala’s board nominees.
On Feb. 28, Harley-Davidson announced that Levatich was stepping down under a mutual agreement between the board and Levatich.
However, Impala asserted in the filing that the board “needed shareholder prompting to remove Mr. Levatich.” A source with knowledge of the situation challenges that assertion.
“No agreement was made with Impala before or after the board and Matt made the decision for him to step down,” the source said.
Harley-Davidson’s board named fellow board member Jochen Zeitz, a former CEO of the sporting goods brand Puma, as acting CEO and elevated him to chairman of the board.
In a statement to the media regarding Impala’s intentions, Harley-Davidson recommended that shareholders reject Impala’s nominees.
“We believe the candidates proposed by Impala would not add additional skills or diversity to the board as their stated skill sets are already well represented among our nine candidates,” the media statement said. “We are confident that we have the right leadership and the right strategy in place to continue creating value for shareholders and to achieve Harley-Davidson’s long-term strategic objectives.”
Impala is making two alternative nominations to the Harley board. One is Brent Dewar, president of Whitby Advisors of Orlando, Florida, and former executive for NASCAR, where his roles have included president, chief operating officer and board member. From 1978 to 2010, he worked in varying roles for General Motors Corp. Dewar holds a bachelor’s degree in transportation from the University of British Columbia and an MBA from York University.
Impala says: “Dewar’s qualifications to serve as a director include his experience as an executive of a major automobile manufacturer and his knowledge of the automobile industry global market trends gained through this role as a senior executive leading successful endeavors in various regions and markets for that same manufacturer and the most popular automobile racing company in the United States.”
Impala’s other nominee is Leo Hindery Jr., chairman and CEO of Trine Acquisition Corp. of New York City. Hindery is a retired race car driver who has experience with founding, leading and serving on the boards of multiple public companies, largely media and telecommunications companies like InterMedia Partners LP, The YES Network, AT&T Broadband and Akamai Technologies Inc.
“Hindery’s qualifications to serve as a director include his experience as a board member and executive of numerous public companies and his expertise founding and growing multiple successful businesses,” Impala said in the filing