Trimble
and
AGCO
have formed a smart-farming joint venture that will help them take on the agricultural equipment maker
Deere.
The companies, farmers, and investors all stand to win.
AGCO (ticker: AGCO) makes farm equipment, while Trimble (TRMB) sells precision measurement technology. They said the joint venture, announced Thursday, is meant “to better serve farmers worldwide with mixed fleet precision agriculture solutions.”
Precision agriculture refers to new technologies designed to make farming more efficient, require less labor, and reduce input costs. It can mean more precise planting of seeds to improve crop yields or the variable application of fertilizers depending on real-time soil conditions. Those and the many other applications available or being developed all require data and computing power.
Deere (DE) is a leader in precision agricultural solutions. The company “has developed an Ag Equipment ecosystem that keeps farms in the fold for generations,” wrote D.A. Davidson analyst Michael Shilsky in a Thursday report. “Farms have come to rely on local dealers and DE’s Operations Center, Precision Ag offerings, and other data-based offerings that help maximize profitability. The switching costs are very high.”
Deere’s competitive position is partly why Shilsky added Deere stock to Davidson’s “Best of Breed Bison” list Thursday. (Davidson’s logo is a buffalo.) Companies that qualify for that list of best ideas check a number of boxes including valuation, balance-sheet strength, competitive position, and other factors.
He rates the company at Buy, with a target of $493 for the price, while Deere stock was down 0.7% at $381.76 in premarket trading. Futures on the
S&P 500
and
Dow Jones Industrial Average
were down 0.2% and 0.1%, respectively.
The joint venture isn’t the likely reason shares are down. As Shilsky points out, Deere sells solutions across a huge base of equipment already in use at farms.
AGCO and Trimble will do the same, serving existing AGCO customers in an arrangement that will enhance both companies’ offerings. Investors appear enthusiastic. Trimble stock was up 2.7% at $50.55 in premarket trading, while AGCO stock gained 1.1% to $118.85.
“Farmers today are looking for mixed fleet solutions across their tractors and the implements that they use to most efficiently and sustainably feed the world.,” said Rob Painter, Trimble’s CEO, in a news release. “We look forward to beginning a new chapter with AGCO to bring precision agriculture to both the factory and to the aftermarket.”
“The exclusive access to Trimble Ag products, combined with AGCO’s existing Precision Ag offerings, accelerates AGCO’s growth ambitions,” said AGCO CEO Eric Hansotia in a release. The JV “will result in our team being even more farmer-focused.”
Under terms of the new joint venture, Trimble will receive about $3 billion in pretax cash proceeds and own about 15% of the new venture. AGCO will own the majority of the business and consolidate its results into its financial reporting.
After the deal closes, Trimble will be more concentrated in the construction, industrial, and transportation markets. It will still have exposure to agriculture, through the JV.
Write to Al Root at [email protected]
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