Fueled by the acquisition of some of the best shortline brands in agriculture, beginning in 1991, AGCO Corp. has since grown to become the third largest farm equipment manufacturer worldwide behind John Deere and CNH Industrial. With recent announcements of its intention to purchase a South American and a European ag-based manufacturer, AGCO has signaled that it’s back in the expansion-by-acquisition mode.
In the past two months, the company announced its intentions to acquire Kepler Weber, a maker of grain storage and handling products, as well as forage and dairy equipment specialist Lely. (Editor’s Note: On Nov. 14, 2017, AGCO announced it had terminated its agreement to acquire Kepler Weber. In October, AGCO announced it was nearing the completion of the Lely acquisition.)
Growing Grain Storage
Having acquired U.S. crop storage specialist GSI in December 2011, AGCO secured ownership of Cimbria in Denmark last September and has now turned its attention to South America and a large player in the agricultural storage market in Brazil.
Kepler Weber is active in a number of markets around the world supplying farm- and industrial-scale storage bins, elevators and conveyors, dryers and cleaners. It is listed on the Sao Paolo stock exchange, but AGCO has secured a binding agreement with two institutional investors to purchase shares that give it a 35% holding in the business.
The next step is a proposed public tender offer to obtain at least 65% but up to 100% of outstanding shares with the purpose of delisting the company. AGCO’s proposed offer, equivalent to $7.03 per share, values Kepler Weber at $185 million.
Announcing AGCO’s plans, Martin Richenhagen, chairman, president and chief executive officer, said, “The acquisition of Kepler Weber would significantly enhance our market position in the South American grain handling and storage industry with products that are complementary to our GSI offerings.
“This combination would provide significant marketing synergies and a leadership position in the South American market, and would further strengthen our capabilities to serve large global customers.”
Richenhagen sees logic in a corporation making tractors, combines and other farm machinery also being involved in the farm crop storage sector and exploiting distribution and reputational strengths. Diversification into the storage arena is also lifting group sales, of course. The acquisition of GSI for $928 million is believed to add $700-$750 million to annual group revenues, while Cimbria — purchased for around $329 million — contributes $186 million or so at current exchange rates.
Cimbria has pursued an ambitious expansion strategy in recent years, targeting high growth markets of grain and seed importing countries such as Egypt and other Middle Eastern countries, having previously focused on exporting countries.
It has subsidiaries in 18 countries and sought cost efficiency gains by adding a factory in the Czech Republic to complement facilities in Denmark, Austria and Italy.
Kepler Weber operates in a relatively volatile geographical market, as illustrated by net revenues that rocketed by more than 50% to the equivalent of $293 million in 2014, fell back to $227 million in 2015 and for the first 9 months of 2016 were reportedly down almost 33% to $105 million. But AGCO, CNH Industrial and Deere & Co. have all forecast improving market conditions for agricultural equipment sales in South America as other regions remain more or less static.
Expanding Forage Business
Forage and dairy equipment specialist Lely has reached agreement to sell the bulk of its hay tool business to AGCO to focus on the dairy industry with robotic milking and feeding systems, and a growing emphasis on data collection and analysis.
The privately owned group will wind down production of mowers, tedders and rakes — some of which are supplied to North American partner Vermeer — and close the factory in The Netherlands making them sometime next year.
AGCO already builds a comprehensive range of similar hay tools in Germany but will acquire the Lely Welger round and conventional hay baler lines and the Lely self-loading forage wagon range, along with the factories in Germany that build them.
The provisional agreement will likely see non-AGCO dealers handling the Lely products outside North America scrambling for alternative hay tool lines creating opportunities for Krone, Pöttinger and others.
Lely Group CEO, Alexander van der Lely, says the deal results from a review of operations that concluded the company needed to focus on one or the other of its two quite different product groups. He is confident that the company’s expertise with automated systems will further strengthen its position as an innovator in the dairy sector worldwide.
“Lely intends to focus entirely on its role as an innovator in the field of robotisation and sensor and data systems for use on dairy farms,” he says. “Over the past 15 years, these product groups have grown into a successful activity for Lely, with a great deal of potential for the future.”
Lely is the most successful manufacturer of robotic milking systems and is seeing accelerating uptake, especially in North America where Lely already focuses on this sector, assembling robotic equipment at its Pella, Iowa, headquarters (see Ag Equipment Intelligence, June 2016). Dairy equipment made a significant contribution to group revenues that hit a peak of €619 million ($660 million) in 2015, but which dropped to €502 million ($535 million) last year.
The company has developed a range of complementary autonomous equipment for dairy farms, including forage blending and dispensing systems, feed push-up and stall cleaning robots, calf feeders and computer-based herd management programs.
For AGCO, the deal provides two key product lines currently lacking in its hay tools portfolio. Development of the corporation’s first forage wagon design has just been completed, but the Lely acquisition will provide a valuable shortcut into this market sector.
It will also bring a leading range of heavy duty round balers and baler-wrapper combinations into the fold; AGCO has in recent years relied on partnerships for its baler products. The Welger product line was acquired jointly by Lely and Vermeer in 2008, but Lely bought the U.S. company’s minority holding in September last year — a move that can now be seen as preparation for selling the business.
About this acquisition, Richenhagen said, “The integration of Lely’s industry leading competence in hay and forage technology will further strengthen AGCO’s full line product offering.” Subject to regulatory approval, he anticipates completion in the fourth quarter of this year.
— March 2017 issue of Ag Equipment Intelligence