Deere sees inorganic options as ‘more actionable’
Deere & Company (NYSE:DE), the Moline, Illinois-based provider of equipment and financial services to John Deere dealers and distributors, has the ability to move on M&A opportunities with its solid balance sheet position, CFO Rajesh Kalathur said Friday.
On the 2Q16 earnings call, the CFO was asked for an update on Deere’s capital allocation priorities and if there were any good deals in the market. Kalathur said the company’s cash plans had not changed, with its A rating of greatest importance followed by strategic options.
“With respect to strategic growth options, you’ve seen us keep organic R&D spend at a pretty healthy rate and you’ve also seen us announce some inorganic acquisitions,” the CFO said.
He noted transactions with Precision Planting, Monosem, and Hagie Manufacturing as examples of recent deals.
“In this type of an industry environment where we have a very strong financial position, some of these inorganic options become more actionable for us,” Kalathur continued. “And if they are in the long-term interests of our shareholders for profitable growth in the long-term, we will act on some of those.”
The CFO said dividends were the next priority, followed by share repurchases.
Deere’s operating segments consist of agriculture and turf, construction and forestry, and financial services. The company’s equipment operations manufacture and distribute agricultural equipment, commercial and consumer equipment, as well as equipment for construction and forestry. Deere’s financial services primarily provides credit services largely to finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the equipment operations.
The company announced in late March it had entered into a joint venture with Hagie, a provider of high-clearance sprayers. As part of the agreement, Deere acquired majority ownership of Clarion, Iowa-based Hagie.
Deere said November 2015 it would buy the equipment business of Precision Planting for an undisclosed sum. The asset was purchased from The Climate Corporation, a subsidiary of Monsanto Company (NYSE:MON).
Earlier that month, Deere signed an agreement to acquire Monosem, a France-based provider of precision planters. The terms of the deal were not disclosed.
Deere has typically handled advisory matters in-house for its more recent domestic buys, according to the Mergermarket M&A database. Bird & Bird was used for the Monosem deal.
Advisors used on earlier acquisitions include JPMorgan, Torch Partners Corporate Finance and Merrill Lynch on the financial side, while Morrison & Foerster, Cokinos, Bosien & Young and Skadden Arps have been used for legal in the past decade.
Citi, BofAML, DLA Piper and Shearman & Sterling have advised on the sell side in the past few years