Kubota in talks for $2.6 billion overseas farm machinery buy

OSAKA, Japan Wed Jan 25, 2012 5:08am EST

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OSAKA, Japan (Reuters) - Japan's leading tractor maker Kubota Corp (6326.T) is in talks to buy an overseas farm equipment manufacturer in a deal that could top 200 billion yen ($2.6 billion), as it looks to tap a global commodities boom and drive growth outside Japan.

Kubota President Yasuo Masumoto told Reuters on Wednesday he hoped a decision on the deal would be reached by autumn, adding this was one of several possible acquisition targets.

"Despite the financial crisis, agriculture, unlike other industries, is doing well," he said in an interview at the company's headquarters in Osaka.

Kubota's overtures abroad are the latest sign that Japanese companies are looking overseas for ways to expand beyond a stagnant home market and take advantage of the yen's near historical highs against the U.S. dollar and euro..

Japanese M&A increased by more than a third last year to $181 billion, the most since 2005, according to Thomson Reuters data, with much of that rise due to companies seeking acquisitions overseas.

Kubota, valued at $11.5 billion, aims to generate 70-80 percent of its sales overseas within five years, from below 50 percent currently, Masumoto said. It's looking to boost sales overseas, particularly of equipment for wheat production, gaining from its experience in building machinery for rice planting and harvesting in Japan.

POSSIBLE TARGETS?

Analysts said Kubota, which began as a foundry in 1890, wants to extend its business in Europe, Africa and Latin America.

Based on the size of the deal signaled by Masumoto, they said closely-held European tractor makers Same Deutz-Fahr and Claas Group could be among potential targets.

German farm machinery maker Claas had sales of 3.3 billion euros ($4.28 billion) last year, predominantly in Europe, earning net income of 181 million euros. Founded in Italy, Same Deutz-Fahr's brands include Lamborghini tractors.

In Latin America, Kubota may be eyeing up brands owned by bigger rivals such as Deere & Co (DE.N), CNH Global NV CNH.N and AGCO Corp (AGCO.N), the analysts said. AGCO last month completed its $928 million acquisition of grain storage systems maker GSI Holdings.

"It clearly makes sense for these guys (Kubota) to do more business overseas, and if they can grow through M&A I think the market would see that as possibly a good move," said Graeme McDonald, an analyst at Citigroup Global Markets in Tokyo.

Kubota said last month it would buy Norwegian farm machinery maker Kverneland KVE.OL through a public offer. By January 20, it had acquired 79 percent of the company's shares for 17 billion yen ($219 million).

As of end-September, Kubota had net cash of around 87 billion yen, according to its latest quarterly filing.

There is growing pressure to increase mechanization in farming in the world's emerging economies, with the global population expected to balloon 30 percent by 2050, doubling the planet's food needs.

Chinese Premier Wen Jiabao this month urged his nation's farms to modernize to ensure supply kept up with demand.

Kubota shares have gained 23 percent since August, when they were at their lowest since April 2009. On Wednesday, the stock closed down 0.9 percent at 688 yen, while the broad Topix share index .TOPX gained 1.3 percent.

($1 = 77.7100 Japanese yen)

($1 = 0.7704 euros)

(Writing and additional reporting by Tim Kelly; Editing by Ian Geoghegan)

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