The ongoing dispute between TAFE (Tractors and Farm Equipment Limited) and AGCO has intensified, raising interest in what could become a harsh takeover.

The tension was highlighted when TAFE filed an amended Schedule 13D with the American Securities and Exchange Commission, revealing its intent to use its stake in AGCO to make significant changes to management and strategic direction.

TAFE’s strategic move

TAFE, along with TAFE Motors and Tractors Ltd and CEO Mallika Srinivasan, currently owns 16.3% of AGCO, making it the company’s largest shareholder. The amended 13D filing indicates TAFE’s dissatisfaction with AGCO’s financial performance and governance.

It points to a 33% decline in AGCO’s share price over the past year, attaching this to poor management decisions, wasteful spending and unsuccessful governance practices.

TAFE has expressed a desire to address these issues by exploring all available options, including replacing certain board members. This move is aimed at preserving the rights and investments of all AGCO shareholders and ensuring that the company’s leadership is held accountable. TAFE’s significant stake provides it with considerable voting power, which it could leverage to enforce these changes.

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AGCO’s response

In response, AGCO has issued a statement confirming its confidence in its board and management team, accusing TAFE of pursuing a ‘self-serving campaign’. AGCO underlined its commitment to maximising shareholder value through its ‘farmer-first’ strategy, which focuses on delivering sustainable growth and long-term returns for all shareholders.

AGCO challenged TAFE’s criticisms by highlighting its recent financial successes. The company reported record net sales of $14.4bn in 2023, with an adjusted operating margin of 12% which is a significant improvement over previous years.

AGCO also pointed to its strategic initiatives, such as the joint venture with Trimble to enhance its precision agriculture technology, and the sale of its grain and protein business for $700m as evidence of its focused efforts to streamline operations and increase growth.

Legal consequences

The tension between TAFE and AGCO escalated in April when AGCO terminated several commercial agreements with TAFE, citing TAFE’s poor operational performance and lack of customer focus in key markets. This decision, which followed years of discussions at various organisational levels, led TAFE to initiate legal proceedings against AGCO in India with the legal battle ongoing.

AGCO maintains that its decision to break these agreements was a necessary step to protect its business interests and that it continues to engage constructively with all shareholders, including TAFE. Despite this, AGCO’s statement expressed disappointment that TAFE has chosen to respond to the commercial decision by threatening to use the consent solicitation process to force changes in AGCO’s Board composition.

Market outlook

The market has responded cautiously to the unfolding drama, with AGCO’s share price dropping by up to 8% recently, reflecting uncertainty about the potential for a hostile takeover and the future direction of the company.