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Advisor

AGCO gets boost from GSI buy?

News on the wire (full story) this morning that AGCO has entered the grain storage business, buying GSI Holdings Corp for $940 million.

 

The deal was described as "a move to expand AGCO's business operations beyond manufacturing farm tractors and combines."

 

It's one of the company's largest acquisitions in recent years, according to the report. GSI has annual revenue of more than $700 million, makes machinery and equipment used to feed hogs and poultry, as well as the grain storage equeipment.  GSI sells its products through more than 500 independent dealers world-wide.

 

"The purchase of Illinois-based GSI is expected to increase Agco's sales in North America and its exposure to the U.S. farm equipment market," Dow Jones reported.

 

Do you think the purchase will help AGCO close the gap in the US with Deere and CNH?

 

John

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4 Replies
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Contributor

Re: AGCO gets boost from GSI buy?

AGCO is a domestic company whose real strength is in the international markets.  Acquiring GCI will allow them to increase marketshare in places like Brazil, where they are currently the top tractor producer even though John Deere is working hard to displace them.  AGCO also has developed a strong presence in China and, with the current news of a bumper corn crop forecasted, this will allow AGCO the opportunity to strengthen their postions in that country, also. 

 

Here in North America, AGCO will gain some additional strength in the grain producing areas and that will certainly help their total product overall marketshare.  The total volume produced by GSI is very smal compared to AGCO's annual volume worldwide but the prospects of gaining new customers for both GCI products and AGCO products are very good.

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Contributor

Re: AGCO gets boost from GSI buy?

AGCO announced yesterday that they were in negotiations with a sugar cane harvester manufacturer in Brazil.  They are currently designing their own harvester but felt that their new product would fit well with the current line of the Brazialian manufacturer.  Their Valtra line will absorb this new harcester product line.

 

In that conversation they also mention the fact that GSI sold only about 10% of their annual sales in Brazil and AGCO thought that they could increase that market penetration since there is a growing demand for grain storage products in the country. AGCO has an extremely strong presence in the country and has been the  tractor sales leader for several decades so they do have some clout to build grain storage sales there.

 

As they gain strength worldwide, their North American presence will be able to increase.  Bob Crain is an excellent marketer and having added financial strength can only help his efforts. 

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Senior Advisor

Re: AGCO gets boost from GSI buy?

I don't know what to think of this.  50 years ago, many companies rebranded grain bins and sold them, then my impression is the industry washed out and got down to fewer brands  that were mostly carried by dealers who worked on the grain side of the industry, not the machinery side.  This is just my impression.  Now, AGCO is getting involved.  Will they integrate bin sales into machinery dealerships?  Will they consolidate and get rid of the independents?

I'm just not sure how to take it.  I don't know how mature the bin industry is.  Many farmers have built their bins, it seems to me. 

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Contributor

Re: AGCO gets boost from GSI buy?

Jim,

 

I think you are correct in your assessment of the North Ameican markets.  I doubt that AGCO will rebrand the GSI products with other than  the probable tag line of "An AGCO Company".  AGCO is primarily a domestic agricultural equipment manufacturer with an international focus. 

 

Deere has made a concerted effort to dislodge them from their leading position in Brazil and that country represents an opportunity for significant growth in the sales of grain handling equipment. Mahindra is major competition in Europe and other parts of the globe, also.  I doubt that the GSI product will be sold through their existing tractor dealer organizations in those markets but that AGCO's reputation and status in the international markets will give them a headstart on establishing a strong grain handling dealer organization. If they simply maintain the North American market share for GSI and gain market share in other parts of the world, that will generate more profits and provide more funding for product development to help AGCO increase their domestic tractor market share. 

 

Consolidation is raging throughout the agricultural markets.  The number of farms in the U.S. that produce the majority of the U.S. grains has been declining for several decades.  Retail dealer numbers have declined from nearly 16,000 in 1970 to the current level of about 5,500 retail locations and less than 4,000 principals.  Farm equipment manufacturers have consolidated, such as AGCO acquiring GSI and others, in response to the generally shrinking number of retail customers and dealers through which to market their products.

 

All of the major OEMs are looking to the international markets to grow their businesses.  The decline of the U.S. Dollar since 2002 has aided them significantly by making U.S. produced products much more affordable in those markets.  The advantage of AGCO's acquition of GSI is certainly an indirect one here at home but it will enhance their position interntionally.

 

 

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