Deere & Co. announced on September 3 that it would review strategic options for its irrigation operations known as John Deere Water. In other words, Deere is looking to get out of the drip irrigation business.
In a note to investors, C. Shon Williams, analyst for BB&T Capital Markets, suggested that these assets could be of interest to center pivot irrigation players Lindsay and Valmont.
According to the press release announcing the move, Deere said it has been involved in the production of irrigation products for the past 7 years and is currently one of the world’s largest full-line drip irrigation manufacturers with global operations and significant distribution in North and South America, Asia, Europe and Africa.
Williams reported that Deere had established a widespread distribution network for its drip irrigation products during that time. The unit is based in California and operates from 24 sales and marketing locations and 19 warehousing locations in 15 countries. John Deere Water’s products are marketed through about 700 independent dealers and distributors in over 100 countries.
In his note, Williams said Lindsay and Valmont have not shown interest in drip technology in the past, emphasizing its more limited applications (vine crops vs. broad acreage crops), propensity to clog or become damaged by animals and higher labor costs due to repeated set-up and tear-down.
“That said, drip irrigation is taking an increasing share of the irrigated crop mix because of its higher efficiency and ability to use waste water (gray water), which is not generally possible in center pivot applications,” Williams said.
“Depending on the price, both LNN and VMI may have some interest in bringing this competitor inhouse given that it likely already goes through some similar distribution channels and both would have the financial means to make it happen.
That asking price has likely come down given that all goodwill related to these assets was written off in the fourth quarters of 2012 and 2010 (total of $60 million pretax, or $56 million after-tax).”