AGCO REAPS BENEFITS OF ITS ACQUISITIONS

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As the long-depressed farm sector enjoys a cyclical turnaround, farm equipment companies like AGCO Corp. are seeding new marketing strategies.

AGCO is grabbing attention on both the back-40 and Wall Street for a string of acquisitions and its sterling stock performance. After snapping up four equipment makers in the past three years, AGCO now has 4,200 dealers-the nation's largest network-and is encouraging them to carry as many lines as possible in the AGCO family.

"It's a cross-selling phenomenon," said analyst Andrew Graves of Friess Associates, Jackson Hole, Wyo. "Their entire goal is to take these dealerships that came with each acquisition and ask the dealers to carry other brands. It works."

The marketing strategy has also paid off in earnings. Duluth, Ga.-based ACGO's shares, traded on the New York Stock Exchange, have bolted from $14 a year ago to about $40 in early June. Sales last year were just under $600 million.

Sales this year could skyrocket with AGCO's acquisition of tractor maker Massey Ferguson from Varity Corp., set to close this summer.

The deal, for $310 million in cash plus stock, makes AGCO the fourth-largest farm equipment company in the world. Buffalo, N.Y.-based Massey Ferguson is the world's largest tractor maker and a strong player in Europe and developing countries. It has assembly operations in the U.K., France, Germany, Poland and Japan.

AGCO has shown it can take several lines of equipment and fill niche markets not served by industry leaders Deere & Co. and J.I. Case Co. AGCO now offers everything from compact tractors for weekend farmers to haybalers made by its Hesston division. White-New Idea Farm Equipment rounds out is line with planters, hay tools and tillage equipment.

"We'll continue to market the lines separately under one umbrella," said Tony Solon, AGCO marketing communications manager.

AGCO convened its dealers in Kansas City, Mo., last month to introduce new products and discuss marketing strategies. The meeting was doubly important because many dealers also hold AGCO stock. The funds generated through stock offerings have helped finance acquisitions and give dealers a stake in the company.

"It's an encouragement to believe in what they are doing and provide some financial incentive as well," Mr. Solon said.

AGCO uses two ad agencies, Gouchenour & Associates, Orlando, and Roberson Marketing, Des Moines (Massey Ferguson's agency of record), to produce ads for major farm publications such as Successful Farm and insertions into regional farm weeklies that are co-op placements with dealers.

The company also uses direct mail to reach dealers and customers, and last year produced a video, sent to potential customers, featuring its Gleaner combine line.

AGCO was formed in the late 1980s when compact tractor maker Deutz-Allis Corp. recruited CEO Robert Ratliff, a former International Harvester executive. Mr. Ratliff used innovative financing strategies, such as selling off dealer receivables, to raise money for acquisitions. He led a management buyout in 1990, renamed the company AGCO and moved it from Milwaukee to the Atlanta area.

"Bob Ratliff is trying to be the Lee Iacocca of the tractor business," said Massey Ferguson dealer Jim Johnson, owner of Machinery Components Co. in Seattle. Mr. Johnson recalled meeting Mr. Ratliff in 1989 and was skeptical of a solicitation to buy AGCO stock. Now he wishes he had.

Much of AGCO's success in the past year is attributable to a strong rebound in farm performance following a decade of hardship in the 1980s.

"The farmer has been experiencing record income for the last two years," Mr. Graves said. "It's a bullish time for them right now."

He expects more growth in equipment orders for the U.S., Canada, Latin America and Asia. Europe, however, continues to flag because of economic restructuring. One contributing factor for strong U.S. sales is the replacement of equipment destroyed in last summer's Midwest floods.

Tractor sales have increased for the past two years and first-quarter 1994 unit sales registered a sharp jump from the same period last year, according to the Equipment Manufacturers Institute. The latest U.S. Bureau of Census figures show a healthy rebound in farm and garden machinery shipments, from $11.5 billion in 1987 to $15.2 billion in '91.

Tough times on the farm in the '80s narrowed the field of equipment manufacturers, and John Deere and Case (which absorbed International Harvester's tractor division in 1985) have solidified their position with aggressive marketing.

Last year, for example, Deere sent its assembly line workers across North America to explain new products to dealers and farmers, and gain insight into market requirements.

Despite its well-known name overseas, Massey Ferguson will have to establish a presence in the U.S. market. "There was no inventory in the United States when Varity owned it," one dealer said.

AGCO's Mr. Solon believes Massey Ferguson's competitive pricing and growing dealer network will persuade many farmers to consider brands other than Deere and Case.

While equipment sales are up, long-term structural changes in farming mean that competing for the farmer's dollar will only get harder.

"The universe of farmers is shrinking," Mr. Solon said, noting that the average U.S. farmer is 55 years old.

Average acreage size is also increasing as midsize spreads are consolidated into "mega-farms." That means more demand for large-horsepower tractors, a market dominated by Deere and Case.

With the middle of the market shrinking, AGCO is focusing on the growing ranks of small farmers, weekend hobby farmers and "sundowners," farmers who work their fields after coming home from day jobs. These customers will opt for the economy and flexibility of a midsize or compact tractor.

"We may not have the biggest horsepower tractors," Mr. Solon said, "but we do have the widest range."

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