Agco CEO "very interested" in M&A

By James B. Kelleher

CHICAGO (Reuters) - The chief executive of Agco Corp (AGCO.N), the world's third-largest maker of farm equipment, said on Tuesday that he was "very interested" in the possibility of doing a major M&A deal in North America if it would expand the company's "modest" market share in the region.

In an exclusive interview with Reuters, Martin Richenhagen, Agco's chairman, chief executive and president, also held out hope that this year would be a good one for North American farm incomes and North American tractor sales, despite early evidence that recession-spooked farmers were holding off new equipment purchases.

"Overall we will face a little more difficult year," Richenhagen said. "But it will still be a very good year compared to history of this industry and this company."

Asked if Agco could do what it wanted with existing assets in its corporate portfolio, Richenhagen said, "Our strategy is based on internal growth."

But he also admitted, "We are in a rather modest position in North America. If we could do a major deal in North America, we would be very interested in doing something like that."

In the world of farm equipment, Agco lags behind No. 1 Deere & Co (DE.N) and No. 2 CNH Global NV (CNH.N), a subsidiary of Italian carmaker Fiat SpA (FIA.MI). It makes tractors, combines and other equipment under the Challenger, Fendt, Massey Ferguson and Valtra brand names.

It derives the majority of its sales in Europe and South America and remains a marginal player in North America, though its business there recently became profitable under the stewardship of Bob Crain, despite its modest market penetration.

Any North American deal with Deere would likely stumble with antitrust authorities, analysts say. A deal with CNH, however, not only might squeak through but also make more sense, given Fiat's purchase earlier this month of automaker Chrysler, which makes CNH look more and more like the odd man out in a car-centric portfolio.

"If something interesting became available," he told Reuters, "we would be very interested."

Richenhagen said that Brazil's new agricultural plan for 2009/2010, which pumps billions of reals into rural credit programs and establishes new minimum crop prices, was good news for Agco's hard-hit sales in the region.

He called the plan "better than expected" and said "I think it will support our business. Brazil is still very cyclical. But I think we've bottomed out and will see some growth."

The interview with Richenhagen took place during the middle of what is the key selling season for Agco and its rivals.

The four months between March 1 and June 30 account for more than 40 percent of all big tractor sales, according to the Association of Equipment Manufacturers. Nearly half of all harvesters are sold between July 1 and October 31, AEM data shows.

In late April, when it last reported earnings, Agco posted a 45 percent decline in quarterly profit, cut its full-year earnings forecast to a range of $2.00 to $2.50 a share from a previous forecast of $3.00 to $3.25, and warned there was "significant uncertainty regarding market demand for the remainder of the year."

The company said the drop in commodity prices from last year's record levels coupled with the global recession had hurt farmer sentiment and prompted them to be more cautious about their equipment investment decisions.