AGCO Corporation: 'a living example of the American dream.'(Cover Story)

CEO Robert Ratliff Entrepreneurially Builds Worldwide Equipment Giant

If things keep going his way, Robert Ratliff, CEO of AGCO Corporation, will go down in the ag equipment industry's history books as its equivalent to Chrysler's rescuer, Lee Iaccoca.

But there's one big difference: Ratliff did it without government help, or any initial borrowed money at all.

Look what the entrepreneurial executive has already accomplished:

* He launched AGCO from a struggling, unprofitable $200 million company into a $1.9 billion major US corporation. That accomplishment landed AGCO in the "Fortune 300" list of all US companies.

* He expanded the corporation from a relatively small, narrow-product line US company, to an international giant with a full 20 percent marketshare of worldwide tractor sales, and a whopping 58 percent tractor marketshare outside the US. AGCO sells more tractors worldwide each year than any other equipment company, by a considerable margin.

* In a bold move, he took the company public with one of the most successful initial public offerings of any company on the New York Stock Exchange in recent years.

And, as the result, AGCO has earned the respect of even the toughest Wall Street analysts ... a big change from Wall Street's usually negative opinions on the farm equipment industry.

* He built the company's net capitalization from $7 million, up to its present net value of almost $1 billion.

* And, perhaps even more importantly, he's played a pivotal role in helping rescue the North American farm equipment industry from its long and deep recession.

And he did it all in only four years.

A Crossover Strategy

Not many corporate execs have that kind of track record in any US industry. And Ratliff did it by inventing a whole new way of doing business with farm equipment.

He calls it his "crossover strategy," and it's his method of setting up dealers with multiple brands, in order to give them access to multiple market opportunities within their existing marketplace.

He describes AGCO's setup as being similar to the way General Motors operates ... by offering their dealers several different product lines, which allows them to pursue seals in several different slices of the market.

And this strategy, Ratliff told I&T in a special interview, is a big advantage for AGCO dealers in the "mature" farm machinery market, for it lets them expand and gain marketshare from within the existing industry.

"The farm equipment industry is a mature market," he said, "which can make it difficult for single-brand dealers to compete.

"But our strategy allows our dealers to grow business from within our existing structure," he told I&T. "And that's one of the reasons recent surveys show they're in the top quartile of all farm equipment dealers in profitability.

"Single-brand dealers need to take marketshare away from their neighboring dealers, in order to grow in a mature market."

And he said his unique marketing system works well.

"Our dealers have been gaining in average marketshare every year," he told I&T, "while their competitors that don't have a broad-based product line are scrambling to maintain theirs.

"I'm very optimistic, and think that trend will continue.

"AGCO did over 400 crossover contracts last year that added an average of $150,000 to each of those dealerships.

"Also," he added, "this very horizontal structure gives our dealers flexibility to meet changing market demands. And it's less capital-intensive."

A Change of Destiny

In an interesting, and thoughtful, keynote speech to a packed audience at the Iowa-Nebraska Equipment Dealers Association meeting in Omaha, NE, Ratliff told how AGCO got to where it is today.

"I'm a living example of free enterprise opportunity," he told the audience.

And he said it all happened because of an occurrence that no one in the world predicted: the destruction of the Berlin Wall.

"While working with Deutz-Allis, an event occurred 5,000 miles away that I reflect on quite frequently," he said. "The Berlin wall came down, and a whole new era opened up in Europe.

"This also changed my destiny and, as a matter of fact, the destiny for many of our dealers."

That's because the German company which owned Deutz-Allis decided to sell the business, and focus on the now-opened Eastern Europe.

"And this is where the American dream starts," Ratliff reflected. "We had an opportunity to buy Deutz-Allis, a distressed company in a depressed industry that had lost money for five years in a row."

But at that time, financing the purchase was a big challenge.

"The bankers were all very polite," he said "Never saying yes, never saying no ... just leaving us hanging."

So he developed his own method of self-financing: he raised the necessary money by selling the company's receivables, for cash, to Whirlpool Finance.

Along with an investment partner, this gave him $7 million to launch AGCO in June, 1990, "without owing anybody anything.

"We built our company with the idea that there were some changing values or traditions that should be acknowledged," he told the audience, "and that we shouldn't do business the way it's been done for the past 50 years."

Using the same financing technique, Ratliff added more companies to the AGCO fold, including Hesston and White Farm Equipment, "and we still had no debt," he said.

Back to US Ownership

These acquisitions, Ratliff pointed out, "were very significant in that they represented the reversal of a trend that had been going on in this country for some time ... it brought the ownership of these traditional US companies back to American shores."

Things went so well that AGCO was able to buy back its receivables in 1992, make longterm financial arrangements with ITT, and "we began to operate in a normal manner."

In 1993, AGCO purchased Massey Ferguson's North American operations. Then, it purchased Massey Ferguson's International operations in 1994, which made the corporation into a major worldwide power in the farm equipment manufacturing industry.

Now, only four years after Ratliff started building the company, AGCO has 2,600 dealers in North America, and a total of 6,600 worldwide. And last year's corporate sales hit a record $1.4 billion.

"Our net earnings in 94 were $3.34 per share, up 96 percent from the previous year," Ratliff pointed out. "Our equity was $7 million when we started, and it's almost $1 billion today.

"This has far surpassed any dreams we ever had. We're a living example of success with a free enterprise opportunity."

All this success, he says, has caused financial analysts to take a renewed interest in the farm equipment industry.

"The attitude of the investment community to our industry has been nothing but the lowest," he told the I-NEDA audience. "But our growth has started some new interest. One of our largest shareholders is now the Fidelity Magellen Group, one of the largest mutual funds in the country."

A Look Ahead

Ratliff also gave the audience a look at what he sees ahead for the industry.

AGCO analysts, he said, generally predict that the US farm equipment sales will continue to be flat in what has become a "mature" industry. And Europe, he says, is predicted to decline as it goes through the consolidations that the US went through several years ago.

"We all remember our own recession of the 80s," he said. "I don't know how many of you realize that in 1980 there were over 15,000 farm equipment dealers in North America. Today, there are less than 6,000.

"Here in North America," he told the audience, "there are four major companies: Deere, Case, Fiat-Ford and AGCO. They capture 95 percent of the North American farm equipment market.

"In Europe, those Big Four only get 55 percent of the total business. There are a lot more players over there."

But in North America, he believes those difficult times are finally behind the industry, and he's now very optimistic about the future of the industry.

"The earth's population," he pointed out, "is increasing by 100 million people a year. That's mind-boggling, and far exceeds any possible growth in our food production capabilities.

"There will be an overwhelming demand developing for food production ... and we're in that industry. And that will benefit those of us in the US very well."

What's ahead for AGCO? As expected, Ratliff predicts continuing growth for his company. He expects to top $2 billion in sales next year, in fact.

And for his dealers?

"There's not a day that goes by that we're not thankful for our dealers" he said. "They're the ones who sell everything we make, throughout the world."

He wrapped up his speech to the I-NEDA dealers with this bit of philosophy and advice:

"I think we all sell ourselves short. I think this industry has the potential for much greater profitability for you and the manufacturers.

And he added this bit of advice:

"Regardless of the time, there is always opportunity lurking ... today ... for you and me.

"If there was an opportunity, right now, and you took no action, that opportunity would pass, unnoted, and would never be remembered.

"It's only the time that you take action, and take some risk, that something occurs."

RELATED ARTICLE: Robert J. Ratliff

President and CEO of AGCO since June 1990. CEO of Deutz-Allis from 1988-1990. Previous executive positions:

* 1986-88, President and CEO of Pro-Tread Corporation, a truck tire retread company.

* 1983-85, group vice president of Uniroyal's Worldwide Tire Group and president of Uniroyal Tire Company, USA.

* 1957-82, several positions with International Harvester, including president of its Export Division.

Ratliff received a BS degree in Industrial Engineering from the University of Maryland, and completed advanced management training at the MIT Sloan School of Management.

AGCO Corporation

* Headquarters: Duluth, GA

* 1994 sales: $1.6 billion

* 7,800 dealers worldwide

* Brands include: AGCO Allis, Hesston, White, Gleaner, White-New Idea, Massey-Ferguson, Landini, Black Machine, Farmland, Tye and Glencoe.