Kubota Corp. (6326) is seeking partnerships with rival tractor makers to expand in the U.S. and Europe, after saying in January it would consider spending 200 billion yen ($2.4 billion) on acquisitions.
“M&A isn’t the only way to go,” Kubota President Yasuo Masumoto said last week in an interview in Tokyo. “We can still collaborate” with overseas farm-equipment makers without resorting to takeovers, he said.
Kubota, Japan’s largest tractor maker, hasn’t found any suitable foreign company ready to sell all or part of its operations, Masumoto said. The Osaka-based company, which specializes in tractors and farm equipment for wet paddy fields, instead will seek partnerships to secure a supply of large tractors used to plow bigger fields that grow wheat and corn -- a market dominated by Deere & Co. (DE), CNH Global NV (CNH) and Agco Corp. (AGCO)
“Rice paddies account for only about 25 percent of agricultural land worldwide” and the rest is for dry cultivation, Masumoto said. By expanding the product line beyond rice-farming equipment, “we aim to become known as a ‘global’ farm-equipment maker,” he said.
The company may ask overseas manufacturers to supply large tractors to be sold under the Kubota brand and offer its own products for sale abroad under other names, he said, without identifying potential partners. It would take five to 10 years to independently develop tractors as powerful as 200 horsepower, Masumoto said. The company’s biggest model is 135 horsepower.
Kubota targets increasing annual sales from the machinery division to 1 trillion yen from 700 billion over three years, Masumoto said, and is focusing on overseas markets as Japanese demand wanes amid an aging population and a stagnating economy. The company particularly targets rice-growing regions in Thailand and China, where economic growth has made farmers richer and enabled them to invest in farm equipment.
Same Deutz Fahr Group SpA, the maker of Lamborghini-brand tractors, last month denied speculation it’s in talks to sell its operations to Kubota. Masumoto said “there is currently nothing that is at the level of talks” regarding acquisitions of European companies.
The company, which in December offered 1.3 billion kroner ($230 million) to buy Norwegian farm-equipment maker Kverneland ASA (KVE), continues to pursue overseas purchases, he said. Kubota said in January Kverneland shareholders had agreed to sell a total of 79 percent of the European company.
Founded in 1890, Kubota began its business by making cast metal products. It started producing agricultural-use engines in 1922, followed by Japan’s first farm tractor in 1960, according to the company’s website. Kubota’s products range from excavators to water pipes and cigarette vending machines. In the U.S., it holds a 40 percent market share for small tractors used to mow lawns.
The company is now focusing on its water and environmental- related business, Masumoto said.
Sales from the water and environmental systems and social infrastructure divisions may increase by more than 60 percent to 500 billion yen over the next three years, aided by spending on water projects in Asia, he said.
Masumoto said more management resources will be shifted to the water businesses to win projects in China and Indonesia. The company will look for local partners, including engineering firms, as well as pump makers and construction companies, to form consortiums to build water treatment plants, he said.
Kubota, up 24 percent this year and outperforming its peers in the 118-member Topix Machinery Index (TPMACH), rose 2.2 percent to 801 yen as of 11 a.m. in Tokyo. The stock, which has fallen in each of the past two years, is down 42 percent from its recent peak of 1,370 yen in April 2006.
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