AGCO Issues Debt to Fund GSI Buy - Analyst Blog

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AGCO Corporation ( AGCO ) has priced an offering of $300 million of its 5.875% Senior Notes due 2021 to partly finance the acquisition of GSI Holdings Corp.

The notes were priced at 100% of par value and the offering is expected to close on December 5, 2011, subject to customary closing conditions. The net proceeds are estimated at approximately $297 million after expenses. The notes will be sold to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933.

In October, the company struck a deal to acquire GSI Holdings Corp. from affiliates of New York-based Centerbridge Partners, L.P. for $940 million. Assumption, Illinois based GSI Holdings is a leading global manufacturer of grain storage and protein production systems with annual revenues of over $700 million. The transaction is expected to close this year.


As of September 30, 2011, the company had total debt outstanding of $535.8 million compared with $727.6 million as of June 30, 2011. AGCO's debt-to-capitalization ratio was 16% compared with 19% as of June 30, 2011. With this note offering AGCO's debt-to-capitalization ratio will rise by approximately 690 basis points.

The GSI acquisition will propel farm equipment maker AGCO into the grain storage and livestock industries. This endeavor is integral to its new vision of expanding its product offerings and entering new markets. The company emerged in the early 1990s through a spree of acquisitions and after a lull of acquisition related activities the company is again looking for fresh targets to grow and expand.

GSI gives AGCO strong positions in the grain storage and protein production segments and gives it a baseline for future growth beyond its core farm equipment business. Furthermore, with GSI's 71% revenue coming from North America compared to AGCO's 22% in North America, the deal will expand AGCO's presence in this market.

The transaction is expected to be immediately accretive to earnings and cash flow. Even though the debt offering will increase the company's debt and interest burden, the synergies from the acquisition far outweigh the negatives. With a full product line of farm equipment and a wide network of dealers and distributors, we believe AGCO is well positioned, over the long term, to capitalize on the need for increased food production, driven by worldwide population growth.

Moreover, the company is also looking forward to expanding its operations in high-growth emerging markets, which bodes well for future operating performance. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.  We also reiterate our long-term Outperform recommendation.

AGCO Corporation is a leading manufacturer and distributor of agricultural equipment and related replacement parts. Its product line is categorized under five groups: tractors, replacement parts, combines, application equipment/sprayers and other machinery.

The company operates in four geographical segments: Europe/Africa/Middle East (EAME), South America, North America and Asia-Pacific. AGCO competes with the likes of  CNH Global NV  ( CNH ),  Deere & Company  ( DE ) and Kubota Corporation  ( KUB ).


 
AGCO CORP ( AGCO ): Free Stock Analysis Report
 
CNH GLOBAL NV ( CNH ): Free Stock Analysis Report
 
DEERE & CO ( DE ): Free Stock Analysis Report
 
KUBOTA CORP ADR ( KUB ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AGCO , CNH , DE , KUB

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