Deere Branches Out With Deal for Road-Equipment Maker -- WSJ
June 02 2017 - 3:02AM
Dow Jones News
By Bob Tita and Austen Hufford
Deere & Co. bought a construction-equipment maker for the
first time in years, as the agricultural-machinery giant pursues
sales beyond the struggling U.S. farm economy.
Deere, the world's largest manufacturer of tractors and
harvesting combines, said it would acquire Germany's privately held
Wirtgen Group for EUR4.36 billion ($4.89 billion). Demand for
Wirtgen's road pavers in markets like China and Brazil is growing
faster than in the U.S. construction and agricultural markets,
where Deere's sales are concentrated.
Expanding Deere's construction business overseas has been a
priority for Chief Executive Sam Allen. Construction-equipment
currently accounts for a fifth of Deere's sales.
"Wirtgen indeed fits squarely with our strategic plan," Mr.
Allen said. "The transaction enhances our ability to serve
customers across the globe."
Rising foreign demand helped Deere raise its profit forecast for
the year by 33% in May even as sales in its core U.S. market for
farm equipment have continued to fall.
The Wirtgen acquisition is the largest in Deere's history, far
surpassing the second-place purchase of forestry equipment-make
Timberjack in 1999 for $600 million. Mr. Allen had long hoped to
pursue such a large acquisition while also shedding smaller
businesses such as sprinkler systems and the distribution of
landscaping supplies.
Deere's construction and forestry business had sales last year
of $4.9 billion with a pretax margin of 3.7% Wirtgen's sales last
year were $2.6 billion with a pretax profit margin of roughly
13%.
Mr. Allen, who headed Deere's construction-machinery business
before becoming chief executive in 2009, said he first approached
the Wirtgen family about a sale in the mid-2000s.
"We've been pursuing this for a long period of time," he
said.
Deere said it would maintain Wirtgen's brands and organization.
Wirtgen had 2016 sales of EUR2.6 billion. Deere generated $26.64
billion in revenue in its latest year, including $9.34 billion
outside the U.S. and Canada.
The deal, subject to regulatory approval, is expected to close
in the quarter ending in January 2018.
Write to Bob Tita at robert.tita@wsj.com and Austen Hufford at
austen.hufford@wsj.com
(END) Dow Jones Newswires
June 02, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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