Deere & Co. bought a construction-equipment maker for the first time in years, as the agricultural-machinery giant pursues sales beyond the struggling U.S. farm economy.
Continue Reading Below
Deere, the world's largest manufacturer of tractors and harvesting combines, said it would acquire Germany's privately held Wirtgen Group for EUR4.36 billion ($4.89 billion). Demand for Wirtgen's road pavers in markets like China and Brazil is growing faster than in the U.S. construction and agricultural markets, where Deere's sales are concentrated.
Expanding Deere's construction business overseas has been a priority for Chief Executive Sam Allen. Construction-equipment currently accounts for a fifth of Deere's sales.
"Wirtgen indeed fits squarely with our strategic plan," Mr. Allen said. "The transaction enhances our ability to serve customers across the globe."
Rising foreign demand helped Deere raise its profit forecast for the year by 33%in May even as sales in its core U.S. market for farm equipment have continued to fall.
The Wirtgen acquisition is the largest in Deere's history, far surpassing the second-place purchase of forestry equipment-make Timberjack in 1999 for $600 million. Mr. Allen had long hoped to pursue such a large acquisition while also shedding smaller businesses such as sprinkler systems and the distribution landscaping supplies.
Continue Reading Below
Deere's construction and forestry business had sales last year of $4.9 billion with a pretax margin of 3.7% Wirtgen's sales last year were $2.6 billion with a pretax profit margin of roughly 13%.
Mr. Allen, who headed Deere's construction-machinery business before becoming chief executive in 2009, said he first approached the Wirtgen family about a sale in the mid-2000s.
"We've been pursuing this for a long period of time" he said.
Deere said it would maintain Wirtgen's brands and organization. Wirtgen had 2016 sales of EUR2.6 billion. Deere generated $26.64 billion in revenue in its latest year, including $9.34 billion outside the U.S. and Canada.
The deal, subject to regulatory approval, is expected to close in the quarter ending in January 2018.
Write to Bob Tita at email@example.com and Austen Hufford at firstname.lastname@example.org
(END) Dow Jones Newswires
June 01, 2017 12:37 ET (16:37 GMT)