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United States

Farm supplies giant moots wind sell-off

US: Deere & Company, the iconic US farm and construction equipment manufacturer, could be on the verge of ending its five-year foray into the wind power business. Investment banking firm Goldman Sachs is reviewing the options for Deere's $1 billion wind portfolio - and selling is on the table.

John Deere is reconsidering its involvement in the US wind business
John Deere is reconsidering its involvement in the US wind business

"Sale is definitely a potential," says Ken Golden, the company's director of strategic public relations. "We still believe the wind industry is a good industry and a growth industry. We are just evaluating whether or not Deere, which has a lot of other core businesses, should be in the wind business."

Deere may be considering a move away from wind because of a management shake-up and a renewed focus on its core businesses. "Deere and other companies got the lights scared out of them because of the credit crisis," says Lawrence De Maria, senior vice-president at brokerage firm Sterne Agee and an analyst in the global industrial infrastructure division.

At the height of the credit crisis Deere, along with many other corporations, feared it would suddenly lose access to working capital through the so-called commercial paper market. In the end, Deere's fears went unrealised.

"It was a little bit of a scare that didn't happen," says De Maria. But the crisis led to a new ethos of operation and an internal shuffling of top management at Deere, including Bob Lane being replaced as CEO by Sam Allen. Lane, who was also chairman, stepped down the day before the company announced its potential exit from wind.

"The new management team is super conservative," says De Maria. "To sign off on $400 million a year of cash flow to a wind business that you're not really in because it's not your core business is probably viewed as a non-essential allocation of capital." Since 2005 Deere says it invested over $1 billion in its wind business, currently operating 34 wind farms in seven states totalling 706MW.

Deere's foray into wind was primarily for tax-management purposes, says De Maria. Large firms that own wind plants or an equity position in them can receive a $0.021/kWh 10-year production tax credit (PTC), which has driven much of the recent US wind boom.

It is too early to tell, says Golden, whether Deere will sell off all its operating wind projects or retain some and continue to extract PTCs. "Maintaining the business is the other option," he says. "You find someone who would service the business as well as you would like to see it serviced and you sell the business. Or you say there's not someone that has come forward and you decide to maintain the business and continue to grow it." There is no timeline and the situation is very fluid, he adds.

Economic conditions

Deere's wind division, John Deere Wind, made a big splash in the US wind market as a developer, owner and operator of wind projects in 2005 because of its corporate weight, strong balance sheet, and the synergies that the company would be able to leverage when negotiating land-control agreements in farming country.

In John Deere Wind's early days, company CEO David Drescher explains, many farmers already had John Deere tractors in their barns, so the prospect of John Deere-owned wind turbines on their property was more familiar than dealing with an unknown wind developer. In these few short years, the company build up a formidable wind fleet.

But Deere has problems in the wind industry. Many of its in-house projects used Suzlon blades, many of which were affected by a series of failures requiring over 1,000 blades to be repaired under warranty. In recent years Deere diversified its equipment to include Vestas, Repower and GE Energy turbines.

Deere sent signals during the height of the credit crisis in late 2008 that it would ride out financial turmoil with a continued position in wind when it acquired the 69MW Noble Thumb wind project from New York-based Noble Environmental Power. Now it could be entering its final days as a major wind player.

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