Farm Industry News

Merging red and blue

Here's what the New Holland and Case merger will mean for customers.

Chicago. Wednesday, November 17. 1:30 p.m. Steve Lamb, president and COO of Case Corporation, stands behind a podium. To his left, seated in rows, are a dozen men in dark suits. All are there to field questions about the creation of CNH - the new company formed by the merger of Case and New Holland - and its implications for farmers and shareholders.

"Everyone is wondering how the movie will end on day one," Lamb says.

What they did. In May of last year, New Holland stated its intent to buy Case. By November, all regulatory agencies had okayed the deal with a few stipulations. They require New Holland to sell its Versatile 4-wd tractor line and Genesis 2-wd tractor line and Case to sell its ownership interest in its joint venture with AGCO Corporation, which produces its hay and forage line. The companies agreed to the stipulations, and final papers were signed on November 12.

Why they did it. Both companies had complementary product lines and markets. For example, New Holland is strong in low-horsepower tractors, whereas Case is strong in high-horsepower tractors. Case is better known to large cash grain farmers in the heartland, whereas New Holland is popular with livestock producers in the Northeast and Southeast.

The combined companies now hold the number-one position in tractors and combines built around the world. What's more, Lamb figures that, by combining efforts, the company will save $400 to $500 million annually after three to four years. Those savings will come from four buckets, he says.

Purchasing and logistics. CNH will be able to coordinate logistics, reduce the overall number of parts used and buy more of the same parts to achieve economies of scale.

Research and development. The company will pool engineering expertise, processes, parts and technology across product lines - an engineering model called a "common platform design."

Selling. There will be cross selling of some product lines such as specialty equipment to make more efficient use of existing distribution channels.

Industrial restructuring. The number of both companies' major manufacturing plants, which total 45 worldwide to date, will be reduced.

What it all means for you. Both brands will remain intact and sold by their respective dealers. "The amount of brand loyalty we have in the market is strong," Lamb says. "So we will continue to give access to preferred brands."

Products developed in the future will maintain that brand distinction. They will be labeled either as Case or New Holland, not CNH. How-ever, because the products will be designed and manufactured on a common platform, up to 70% of the parts in two given pieces of equipment could be the same, including, for instance, engine components, axles, frames, valves, valve switches, mirrors or steps. This concept was borrowed from the automotive industry. "For example, the new Lincoln Continental and Jaguar share 40% of the same part numbers," Lamb says. "But if you are a Jaguar customer, you will recognize it as a Jaguar, and if you are a Lincoln Continental customer, you will recognize it as a Lincoln Continental."

Parts that are known to customers as making each brand unique will remain different. These include components such as engines, transmissions, steering and comfort features.

The amount of differentiation will depend on the product, according to Leopold Plattner, president of global business for Case IH. "For example, with a plow, little differentiation is required, color perhaps," Plattner says. "A tractor is more emotional, and a higher degree of differentiation is needed."

Separate brand identities do not mean that a Case dealer will not sell New Holland products and vice versa. Already, some dealers have merged the lines to boost sales.

The question being asked now is who will buy Case's and New Holland's required spin-offs, a deal that must take place by April 4. The most plausible contenders are AGCO and Caterpillar.

Jeff Hawkinson, company public affairs representative with Caterpillar, says announcing any decision would be premature. "It would force us to speculate, and we don't do that," he states.

Bob Ratliff, chairman of AGCO, says the company will take a hard look at buying the hay and forage products Case must sell since AGCO already owns half that business. It also will look at New Holland's Versatile 4-wd and Genesis 2-wd lines. "But we have no knowledge of the financial conditions of those businesses, so it would be exploratory," Ratliff says. "And even if we knew, we don't know whether we would be a candidate."

CNH will be allowed to buy back and market these products to customers for a period of two years. Its dealers also will be able to source replacement parts.

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