Deere In China

Deere (NYSE:DE) announced a major acquisition of Ningbo Benye Tractor & Automobile Manufacture Co China’s leading manufacturer of low horse power tractors. We are to believe that because the Chinese farmer particularly the rice farmer is interested in becoming more efficient this is a really good idea. What does Deere add to the equation? The Chinese rice farmer will become more efficient with or without Deere.

You can say it provides access to the Chinese market but Deere already has that. The financial details were not disclosed. The press release was silent on who was the seller. Benye was started in 1955 when Mao was in charge so I expect the state is still the shareholder. The press release indicates they have asked for the appropriate government review of the transaction. It’s all quite fuzzy but I expect Deere will be the owner in the end.

If Deere wanted to build in China it probably could have. This way they acquire the legacy issues. The entire release is silent about any potential business plan. Yes the Chinese Rice Farmer is trying to modernize. But can the Chinese Rice Farmer afford the new equipment or will it have to be financed in some fashion. Farm financing is a very political issue in any country. Who will run and capitalize the program?

Deere has its problems and probably sees China as the driver to many solutions. Deere needs to put some cards on the table so that the investor can follow the program. Wide sweeping comments such as “we are expanding in China” do not cut it.