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VOLKSWAGEN GROUPS AUDI

UNIT TAKEOVER





Name of the Author Appears Here
Name of the Institute Appears Here
Date of Submission Appears Here
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EXECUTI VE SUMMARY
Volkswagen acquired Ducati in 2012 through its brand Audi. Ducati had been in financial crisis
for quite some time. Following the acquisition and control, Volkswagen began to rebuild the
management of Ducati and also announced its intentions to enhance its business in China. The
two corporate entities generally have distinct culture and absorption procedure is different in
different acquisition processes.
The motivation for Volkswagen to engage in acquisition of Ducati is to consolidate its
competitive positioning in the product category of motorcycles. Volkswagen also benefited from
the technology of Ducati and skills of the Italian skilled workers. The acquisition is also
beneficial for Ducati to overcome its liquidity problems.
There are significant short-term and long-term repercussions of this acquisition both for the
companies and the motorcycle industry as a whole. The industry dynamics are likely to become
highly competitive. It is expected that the future strategic direction of the group would be to
expand Ducatis market to newer regions for a time horizon of three to seven years.





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INTRODUCTI ON
Volkswagen AG is a German automobile manufacturer, headquartered in Wolfsburg, which is a
consolidated parent company of commercial vehicles. It is the largest automobile manufacturer
in Europe and the second largest in the world. Through its 12 brands, it is present on all world
markets and manufactures both cheap cars, upscale cars, trucks and motorcycles. Ducati Motor
Holding is a motorcycle manufacturer based in Italian city of Bologna.
The acquisition deal for Ducati has been carried out in 2012 by the Volkswagen Group through
its brand Audi for 860 million Euros in order to compete with rival BMW in the field of
motorcycles. Ducati is a respected brand in consumer markets which was founded in 1926 and is
one of the best known motorcycle manufacturers in the world (Emmi, 2012). On the other hand,
Volkswagen is the largest automobile manufacturer in Europe and the second largest in the
world.
Ducati had been in financial crisis for quite some time and the financial investor Investindustrial
took over the Italian company a few years ago when it was in crisis. The acquisition deal has
been finalized on 25 May 2010 (Cassiman and Colombo, 2006). By September 2012,
Volkswagen began to rebuild the management of Ducati and also announced its intentions to
enhance its business in China.
There are some key considerations in corporate mergers and acquisitions. Firstly, two corporate
entities generally have distinct culture and absorption procedure is different in different
acquisition processes (Wales, 2012). Mergers and acquisitions that turn out to be successful are
those in which corporate cultures are not very distinct or there is mutual tolerance towards
changes in management style.
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In addition, employees and management must be understanding that mergers and acquisitions not
only entails acquisition of all or a majority of the entity, but also alienation, sale of divisions, sale
of certain subsidiaries or lead changes in the ownership structure of the firm. Therefore,
employees or management of the acquired company must not be disturbed at such occurrences.
In addition, shareholders should not be perturbed or panic during acquisition processes and must
be cognizant of the fact that the purpose of mergers and acquisitions is to increase shareholder
wealth and achieve competitive advantage in the market.
MOTI VATION FOR ACQUI SITION DEAL
The motivation for Volkswagen to engage in acquisition of Ducati is to consolidate its
competitive positioning in the product category of motorcycles in order to compete with rival
BMW. Volkswagens subsidiary Audi has been losing its competitive edge against its archrival
BMW for quite some time (Wales, 2012). The battle that rages between BMW and Audi for the
lead in the premium segment has been a major motivator for Volkswagen to acquire a brand with
strong presence in premium
motorcycle segment. Also,
Volkswagen needed to have
motorcycle manufacturing unit other
than a renowned brand name in its
portfolio.
Volkswagen also benefited from the
technology of Ducati and skills of
the Italian skilled workers which
Figure 1 - Ducati Quarterly Net Income 2008-12 (source: bloomberg.com)
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harbingers a competitive advantage and a bright future of the company. Ducati had a loyal and
growing customer base, which is a key advantage for global presence. Also, the excellence of
engineering work at Audi and the VW group implies synergies for both entities.
The motivation for Ducati was to overcome its liquidity problems. Although, following 2009
Ducati seemed to recover from its financial crisis, mainly due to the sales success of the Monster
Dark, the debt of the company has been accumulating year after year and had reached 280
million Euros (Cassiman and Colombo, 2006). It was important for the survival of the company
to be owned by a group with strong financials. The debts of the two-wheeler maker had jumped
to 1.7 times its revenue and the annual interest payments on these debts were getting difficult for
the company to be paid annually. Also, strategic difficulties were foreseen by Ducati since the
motorcycle business is getting difficult and the European market has halved in recent years.
There acquisition deal was, therefore, fulfilling needs of the both parties and seemed promising
in terms of benefiting the shareholders of both organizations in the long-run.
SHORT-TERM AND LONG-TERM REPERCUSSIONS OF THE ACQUI SITI ON
There are significant short-term and long-term repercussions of this acquisition both for the
companies and the motorcycle industry as a whole. The acquisition is beneficial for the industry
at large in view of the further development of urban mobility. Ducati is a technologically
superior brand and the acquisition deal took care of the immediate financial distress on this brand
(Paulo, 2012). There are benefits for both Ducati and its consumer market of this acquisition
because it provides much needed sustainability to this brand. Volkswagen, on the other hand,
may not derive any immediate financial gains in the short-run.
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There are long-run benefits for the industry, as well, since Ducati is in the process of
development of electric two-wheeler vehicles which are needed vehicles for the market
especially for short distances. In the long-run Volkswagen will benefit by a new revenue stream
and will gain profitability through this acquisition. The acquisition of Ducati will benefit it in the
long-run by giving the brand an international exposure which is important because the
motorcycle market in Europe have halved during the last few years.
The industry dynamics will of
course become highly competitive
following the acquisition because
the market size of the industry
does not get impacted due to this
acquisition, however, the
competition does increase
tremendously following this
strategic move of Volkswagen. When Ducati is backed by the ownership of such a strong group,
it will adopt strategic moves to gain market share from existing players in the industry (Emmi,
2012). In addition, Audis management has already expressed intentions to expand their
operations at the global level and increase the reach of the brand beyond the traditional European
market of Ducati. Japanese motorcycle manufacturers like Yamaha, Honda and Suzuki are
also attempting to gain maximum share of global consumer markets on the basis of superior
design and better fuel efficiency.

Figure 2 - Changes in Comparative Market Shares in Global Motorcycle
Industry 2006-11 (source: Yahoo Finance)
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STRATEGI C OUTCOMES OF THE ACQUI SITION DEAL
The roots of this strategic step of Volkswagen do lies in the past expressions of the company of
the need to gain a sizeable holding in two-wheeler category. Ducatis acquisition by Audi is
certainly a step toward this strategic intent. Even for Ducati, this acquisition comes as a part of
strategic design. The manufacturer had been part of the majority of the Italian financial fund
Investindustrial, but the parent group was not as much interested in the product, but rather about
fast and strong financial gains. Consequently, low investment was made in the product or market
development.
The above mentioned phenomenon is exhibited by the fact that the Italian unions strongly
welcomed Ducati being taken over by Audi. Ducati employees are currently under uncertainty
given that the Italian media have for weeks expressed sentiments against the sale, yet there have
been evidences that the corporate culture of Ducati has remained intact following the takeover
which has been welcomed by employees: Audi has not indicated the slightest intention to
relocate the production site.
Since, it has only been six months since acquisition deal has been executed, it is quite early to
say whether the acquisition deal is a success or not, yet Ducati is the twelfth brand of the
Volkswagen group and is already termed highly important component (Cassiman and Colombo,
2006). Also, the purchase had been long speculated, especially the motorcycle VW supervisory
board chief Ferdinand Piech said to have played a key role in the process, the strategic interest of
the two groups supplemented each other. For this reason, the acquisition deal can be termed as a
success.

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EXPECTED STRATEGI C DIRECTI ONS OF THE GROUP
The strategic move is coherent in terms of market realities. Ducati offers to its parent group
Volkswagen its experience in lightweight, special motor technology and advanced control
systems. Moreover, the external environmental scans exhibit that the demand for motorcycles in
Asia will grow significantly. With the takeover of Ducati Audi will supplement its own
development endeavours. Audi has for some time been experimenting with different materials to
reduce vehicle weight. Furthermore, Audi plans to profit from a special combustion process that
Ducati has developed. Therefore, to a large extent the strategic move of acquisition form part of
a coherent corporate strategy.
It is expected that the future strategic direction of the group would be to expand Ducatis market
to newer regions for a time horizon of three to seven years. However, during the first two years
of operations, the attempt of the group would be consolidate its own operations and to bring
coherence among the cultures of the two entities. Ducati, established in 1926, is already
accustomed to change. Since the 1980s, the takeover by Audi is now the fourth change of
ownership.
Volkswagen may be short on liquidity to make immediate investments in marketing, since the
final purchase price paid by the parent group is relatively low at 300 million Euros. In the short
run, the group is also likely to adopt extensive measures to reduce costs and to expand
simultaneously (Cassiman and Colombo, 2006). For the time horizon of three to five years,
instead of forming new plants the focus would be on increasing production from plants based in
Thailand and Brazil.

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CONCLUSI ON
The paper discussed acquisition of Ducati by Volkswagen and the strategic rationale for such
acquisitions. It is found that the motivation for Volkswagen to engage in acquisition of Ducati
was to consolidate its competitive positioning in motorcycle industry. It is concluded that stratic
benefit of this acquisition is that Volkswagen gains superior technology of Ducati and skills of
the Italian skilled workers. Further, it is discovered that the acquisition is also beneficial for
Ducati to overcome its liquidity problems. Finally, it is concluded that short-term and long-term
impacts of this acquisition will be observed in the motorcycle industry and the future strategic
direction of the group would be to expand Ducatis market to newer regions.











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REFERENCES
Cassiman, B. and Colombo, M. (2006) Mergers & Acquisitions: The Innovation Impact, London:
Edward Elgar Publishing.
Emmi, E. (2012) Ducati brings back Ciabatti, 19 Oct, [Online], Available:
http://www.gpone.com/index.php/en/201210198598/Ducati-brings-back-Ciabatti.html [1 Nov
2012].
Paulo, S. (2012) VW profit slumps on European gloom and tech costs, 24 Oct, [Online],
Available: http://articles.economictimes.indiatimes.com/2012-10-24/news/34708163_1_vw-
profit-italian-motorcycle-maker-ducati-hans-dieter-poetsch [1 Nov 2012].
Sherman, A. (2011) Mergers and Acquisitions from A to Z, Ohio: Amacom Publishing.
Wales, R. (2012) VW celebrates Ducati acquisition with Audi A1 Ducati Edition, 19 Oct,
[Online], Available: http://www.nitrobahn.com/news/vw-celebrates-ducati-acquisition-with-
audi-a1-ducati-edition/ [1 Nov 2012].