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Indian tractor maker amasses 12.5% stake in AGCO

Mallika SrinivasanLarge insider buys are fairly common at publicly traded companies, but it is rare for a game-changing accumulation to occur quickly. This is exactly what has happened at AGCO (parent company of MF, Fendt, Valtra and Challenger), where a director has purchased millions of shares. Elected as a member of the board of directors at Agco mid-2011, since April 2012 Indian businesswoman and CEO at Tractors & Farm Equipment (TAFE) Mallika Srinivasan, has bought many US$millions worth of AGCO shares.

There is a mandatory stock ownership for directors, and AGCO encourages its board members to buy shares. However, it is very unlikely the company encourages them to buy quite so many, her holding in the US-concern rising to over 8 million shares last year. Some industry analysts reckon TAFE now owns 9.4 million AGCO shares, and that the Indian tractor makers stake in the US-giant could be worth as much as US$665 million.

In September last year, AGCO announced it had reached an agreement with Mrs Srinivasan not to increase her stake in AGCO beyond 12.5%. Judging on the recent low level of buying activity, we can only assume this limit has already been reached, making TAFE the single largest shareholder in the North American-based concern.

When quizzed at a SIMA show press conference in Paris last week, AGCO top man Martin Richenhagen said TAFE is not allowed to exceed the agreed 12.5%. Interestingly, AGCO recently announced it had earmarked over US$500 million for share re-purchase schemes. The official line is this reflects the concern’s healthy cash flow, confidence in the long-term strength and strategy of the company, and commitment to increasing shareholder value. But it is also possible the company is looking to prevent even more stock from falling into Indian hands.

Industry analysts continue to puzzle over Mrs Srinivasan’s motives and what she hopes to harvest from the massive and speedy investment in AGCO. The American-based concern saw its turnover fall 7% from a record of nearly US$11 billion in 2013 to US$9.7 billion last year. While Mr Richenhagen is very unlikely to be able to realise his dream to grow annual sales to US$15 billion by 2016, 2014 performance is still the second highest level ever, and AGCO’s recent decision to initiate a dividend may have some bearing on Mrs Srinivasan’s interest.

Given the size and rapidity of her purchases, it is possible she would like to play a larger role in AGCO’s decision-making process. Although she is not reportedly intimately involved with the day-to-day operations at AGCO, her status as an insider must not be taken lightly.

One of the most powerful women in the Asia-Pacific region, the ‘tractor queen’ as she is sometimes referred, is believed to be one of India’s richest individuals. The exact extent of her finances is difficult to judge, but it is believed the increased stake in AGCO was made without putting a serious strain on her personal cash flow.

AGCO celebrates its 25th anniversary this year. The focus of the past decade has been on organic growth, but the 1990-established company grew initially through 30 acquisitions. By increasing her stake in AGCO, Mrs Srinivasan could gain a promising foothold for TAFE in North America, and it cannot be entirely ruled out she could eventually engineer a takeover bid for AGCO.

The ambitious TAFE boss plans to be more aggressive in the future, and is looking to grow the current turnover of around US$2 billion today to US$5 billion 3-5 years from now. With a 25% share of the Indian tractor market (second only behind Mahindra & Mahindra), the world’s third largest tractor company makes around 170,000 tractors a year. In 1960, TAFE entered into a licensing agreement with Massey Ferguson to assemble CKD tractors of up to 75hp, which are branded as MF and sold in India. AGCO currently holds 23.5% in TAFE.

By Steven Vale

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