Tafe Motors and Tractors invests $140 mn in US firm

Both parties had signed standstill agreement earlier of shareholding

Tafe Motors and Tractors Ltd (TAFE) has invested around $140 million by way of equity in US-based AGCO Corporation, a worldwide manufacturer and distributor of agricultural equipment.

TAFE has an ongoing relation with the US company for over 50 years. Its spokesperson confirmed the development and said the investment is part of regular “business co-operation”. He declined to elaborate further.

According to Reserve Bank of India (RBI’s) data (outward FDI from India for October), Tafe Motors and Tractors Ltd and Tractors and Farm Equipment Ltd have invested $28.93 million and $110.41 million, respectively, in AGCO Corporation.

AGCO operates with five core brands: Challenger, Fendt, GSI, Massey Ferguson and Valtra. The firm manufactures agricultural equipment and sells across 140 countries. In 1960, there was a pact signed between Massey Ferguson and TAFE. It was a licence pact, where TAFE started to assemble — CKD assemble tractors — between or up to 75 horsepower. Branded as Massey Ferguson, these were sold in India.

AGCO currently holds 23.5 per cent in TAFE, which is within the limit it can hold in an Indian company as per the regulations.

Martin H Richenhagen, chairman of the executive committee and member of succession planning committee, AGCO Corporation, in a recent earnings calls, said: “TAFE is number two in India, very close to the market leader, Mahindra & Mahindra. While Mahindra has a tendency to lose market share, TAFE does gain market share every year, and this is also supported by the technology transfer between AGCO and TAFE. So that’s a very solid, long-lasting relationship.”

TAFE is AGCO’s main supplier for small tractors for markets like Africa, the South America and also in the US. It is AGCO’s agency for the purchase of components in India, and AGCO generates a dividend through its investment, he added.

The company later invited Mallika Srinivasan, chairman and CEO of TAFE, to join the board, and then there’s mandatory stock ownership for directors.

“Mallika wanted to signalise how much she believes in our business and how much she believes in our strategic alliance and wanted to buy more. In order to make sure that we don't get into complication here long term, we decided to agree on a standstill agreement, which is 12.5 per cent on the basis of the share count December 31, 2013, and this is pretty much what she is holding out through programs, and she is pretty close. I think she is at around 11 per cent right now, 11 per cent-something, 11.2 per cent, 11.3 per cent, 11.4 per cent, depending on how you look at it. And we are actually very satisfied to have such an important strategic shareholder,” said Richenhagen.

During October 31, 2013, she held 61,11,590 shares (owner type indirect) in Agco Corporation, which has gone up to 1,11,96,271 shares on October 24, 2014, according to data available with Nasdaq.

Quoting his conversation with Srinivasan, he said, she sees it as a strategic long-term investment without the intention to become a traitor or to sell and buy depending on the stock price.

“She is helping us to understand the markets of Asia much better than we could do that just from Georgia,” he added.