DULUTH, Ga. – AGCO Corporation (NYSE: AGCO), known for its agricultural machinery and precision ag technology, has agreed to sell most of its Grain & Protein business to private equity firm American Industrial Partners (AIP) in a deal valued at $700 million. The transaction, expected to close by year-end, is subject to customary closing adjustments and regulatory approvals.
AGCO's Chairman, President and CEO, Eric Hansotia, stated that this divestiture aligns with the company's strategy to concentrate on high-growth, high-margin, and high free cash flow generating businesses, particularly after the recent PTx Trimble joint venture which concluded in April 2024.
The deal implies a multiple of approximately 8.3x based on the sold business's adjusted EBITDA for the trailing twelve months ending March 31, 2024. AGCO plans to utilize the net proceeds in line with its capital allocation priorities, including debt reduction, investments in technology, growth initiatives, and returning capital to shareholders.
AGCO anticipates a loss on the sale of the Grain & Protein business ranging from $450 million to $475 million. The company will start reporting the Grain & Protein segment as held for sale in its consolidated financial statements from the second quarter of 2024 until the closing date.
Financial advisory services for AGCO are being provided by Morgan Stanley & Co. LLC and Rabo Securities USA, Inc., with legal advice from Simpson Thacher & Bartlett LLP. AIP has engaged Santander (BME:SAN) Corporate & Investment Banking for financial advice and Sidley Austin LLP for legal counsel.
Moreover, AGCO Corporation has been the center of various significant developments. The company has announced a restructuring plan, affecting 6% of its global salaried workforce, which is expected to yield yearly savings between $100 million and $125 million. This move aligns with similar actions by competitors due to weak demand in the agricultural machinery market.
In response to these figures, UBS has reduced its price target for AGCO to $107, maintaining a neutral stance, while CFRA downgraded AGCO's 12-month price target to $105, maintaining a sell rating, and Oppenheimer adjusted its price target for AGCO to $133, maintaining an outperform rating.
AGCO launched a same-day delivery service for machinery parts through its dealer AgRevolution. The company also received an unsolicited bid for its Grain & Protein business segment, which analysts suggest could fetch approximately $675 million.
InvestingPro Insights
AGCO Corporation's strategic move to divest its Grain & Protein business comes at a time when the company is experiencing a mix of financial signals. With a market capitalization of $7.3 billion and a P/E ratio that stands at a modest 6.62, AGCO appears to be trading at a low earnings multiple, which could signal an undervaluation relative to its earnings potential. This is further supported by a PEG ratio of 0.46 for the last twelve months as of Q1 2024, suggesting that the company's earnings growth rate is not fully reflected in its current share price.
Despite analysts' concerns, as evidenced by 12 analysts revising their earnings downwards for the upcoming period, AGCO has demonstrated a commitment to shareholder returns, having raised its dividend for 11 consecutive years. This dedication to consistent dividend payments is an important factor for income-focused investors, especially in a volatile market environment. Moreover, AGCO's cash flows are robust enough to cover interest payments, which is a reassuring sign of financial stability.
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