AGCO acquires Challenger tractors.

The agricultural equipment industry has one less player. Caterpillar, Inc. has agreed to sell the design, assembly and worldwide marketing of the new MT Series of Caterpillar's Challenger high-tech farm tractors to AGCO, a Georgia-based agricultural equipment manufacturer and distributor.

Only a few months ago, Caterpillar offered dealers and distributors a look at the company's new MT700 Series tractors, which had an innovative steerable 3-point hitch, new styling, higher engine power and a new electronic-over-hydraulic steering system (see I&T, September-October). At the event introducing the MT700, there wasn't a hint that Caterpillar wasn't in the ag equipment business for the long haul. The media, as well as the Caterpillar dealers, were taken by surprise by the announcement of the sale.

So what benefits for each company does the sale bring to the table? To start with, the deal gives Caterpillar the opportunity to provide additional engines and other components to AGCO. Caterpillar is already a major engine supplier to AGCO, which is one of the largest customers of Caterpillar's Perkins Engines division.

For AGCO, the company is getting a ready-made machine with high visibility and popularity, one that is uniquely different from other models sold by AGCO, and they are buying the R&D already complete and a * AGCO is a major worldwide agricultural equipment player, and this new tractor technology from Caterpillar gives the company a leading entry into new marketing segments focusing on high-technology farming and large-acreage farming, according to John Shumejda, AGCO's president and CEO, who died tragically in a plane crash on January 4, 2002, only a few weeks after the Caterpillar purchase was announced (see sidebar article).

"AGCO will provide Caterpillar dealers with additional products that will broaden their equipment offerings and enhance their competitive position in the agricultural equipment market," Shumejda said. "Adding these outstanding Caterpillar machines to our brand line-up puts AGCO in a strong position to respond to the growing customer need for high-horsepower track-type tractors that can maintain more efficient traction under full loads than conventional rubber-tire tractors of similar size.

"The versatile new MT Series provides the latest technology to tackle a wide variety of farming applications."

Under the agreement, AGCO will immediately begin assembly of four models of the MT700 Series of Challenger tractors. Caterpillar will be a long-term supplier of high-horsepower (220-500 hp) diesel engines, drivetrains and other major components, including the Mobil-Trac system, with its rubber tracks that enable more efficient use of engine power with less soil compaction, according to AGCO.

AGCO will acquire the MT Series product design and will continue to market the tractors through existing Caterpillar dealers worldwide, as well as through a selected network of AGCO dealers. Caterpillar will continue to provide technical support to ACCO on track technology and will maintain customer support services for all Challenger tractors produced before the sale of the MT Series to AGCO.

Both companies have agreed not to disclose financial terms of the transaction, which is expected to be finalized in the first quarter of 2002. In conjunction with this deal, Caterpillar will take a pre-tax charge of about $80 million, according to the news release.

RELATED ARTICLE: AGCO Executives Die in Plane Crash

A tragic plane crash in Birmingham, England, on January 4, 2002, took the lives John M. Shumejda, president and CEO of AGCO Corporation, and Edward R. Swingle, the company's senior vice president sales and marketing. Their pilots also died in the crash.

Shumejda was a member of the original management team of AGCO Corporation at the time of its formation as a management buyout in 1990. Appointed to the position of president and CEO in 1999, he previously held several other key management positions at AGCO Corporation since its formation in 1990, including president and chief operating officer, executive vice president - technology and manufacturing, senior vice president - operations, vice president - combine operations and vice president - sales.

Swingle was previously senior vice president of worldwide marketing. He also held several key management positions at AGCO since its formation in 1990, including senior vice president - AGCO Americas, vice president sales, vice president - dealer operations, vice president financial operations, and vice president - parts.

In the company's restructure of executive personnel following the crash, Robert J. Ratliff, AGCO's executive chairman, has assumed the responsibility of president & CEO on an interim basis. James M. Seaver was appointed senior vice president, sales and marketing worldwide. He will be responsible for the management of the sales and marketing activities of the four global regions of North America, South America, Europe, Africa & Mid-East, and East Asia Pacific. He was part of the management buyout in 1990 and, as such, has been a member of AGCO's management team since its inception. Since October 1999, he has been CEO of AGCO Finance, the Company's North American retail financing joint venture with Rabobank Nederland B. V. "As a co-founder, Jim contributed to the fundamental strategies of AGCO and has had extensive experience in senior management of sales and marketing functions throughout the world," commented Robert J. Ratliff, AGCO's Chairman, President and CEO. "I am highly confident that he has the qualifi cations to continue the efforts of Ed Swingle in leading our company to new heights and achievements."

Steve Wood was appointed vice president, sales and marketing EAME. In this position, he will be responsible for the management of overall sales throughout Europe, Africa, and Middle East for Massey Ferguson and Fendt brands. He has served as managing director of the company's South America operations based in Brazil since early 2000.

Adri Verhagen, formerly senior vice president sales & marketing, is on special assignment reporting to the president and CEO.

Acquisition Terms

What did AGCO purchase?

* Design, manufacturing and marketing of the Challenger MT700 and MT800 Series tractors (previous Challenger tractor models are not included in the agreement)

* Challenger brand name

* Caterpillar facility in DeKalb, Ill., where Challenger tractors are assembled

What is Caterpillar's role?

* Long-term developer and supplier of major components (engines, drivetrains, Mobil-Trac system undercarriages, electronics and technology) for the MT700 and MT800 Series tractors

* Opportunity to supply additional components for other AGCO products

* Continue providing traditional Cat construction machines (wheel loaders, skid steers and telehandlers) for use in farming applications

* Continue providing product support for Challenger tractors and other Caterpillar-branded ag equipment already in the field

What about the dealers?

* Challenger MT700 and MT800 Series tractors will be marketed worldwide through Caterpillar dealers who elect to become full-line Challenger dealers for AGCO

* Caterpillar dealers will serve agricultural customers with the broad line of AGCO equipment under the Challenger brand name, including wheel tractors in a wide horsepower range, planters, implements, combines, hay equipment and sprayers

* Products marketed under the Challenger brand name will have Caterpillar engines and components and other exclusive features which will differentiate the brand from other equipment manufactured and marketed through AGCO dealers

* Caterpillar dealers will continue to service equipment and provide parts for current Challenger tractor owners