The long-running quarrel between TAFE and AGCO had been rumbling along quietly in the background for some years but in April of this year it spectacularly broke to the surface when AGCO decided to abruptly end its 64-year partnership with the Indian company.
The AGCO board announced this decision the day after a board meeting which had been attended by Mallika Srinivasan, chairman and managing director of TAFE, which, with a 16.3% holding in AGCO, just happens to be the corporation’s largest shareholder.
The immediate response of TAFE was to apply to the Commercial Court in Chennai for a status quo order which ruled that neither company could make any changes to the trading relationship as it stood at the time.
Open letter
More recently, TAFE filed a case before the Madras High Court in which it seeks ownership of the Massey Ferguson brand in India, Nepal and Bhutan, noting that the company has, over the years, developed a MF branded product line orientated towards these markets that is significantly different from anything AGCO produces.
It also sent an open letter to the AGCO board listing its frustrations, including a 19% fall in share price for the year to date, and pointing to a lacklustre performance when considering total shareholder returns over the past three years.
In addition to mentioning certain financial results, the letter also focused on several other shortcomings it sees in AGCO’s performance over the past few years.
At the top of the list is what it sees as misplaced focus on specific market segments rather than the corporation carrying a full range of farm machinery to help reduce the cyclic effect of markets, it later notes combines as a case in point.
To be fair to AGCO, this is not as straightforward as it might seem. Specialist providers of implements have developed complex machines for the western market based on years of experience; this cannot be easily duplicated by what is basically a manufacturer of tractors.
Combine conundrum
With regard to combines, of the three brands under AGCO’s wing, it is only Massey Ferguson that has them in its DNA; neither Fendt nor Valtra have produced them in the past while AGCO’s main competitors, John Deere and CNH, have a rich heritage of combine production each.
The Ideal range is a brave attempt by AGCO to come in at the top and they are gaining sales, but it will be a long road to reach the level of success that the investment probably requires.
In the letter, TAFE also expands upon its dissatisfaction with the AGCO board and its management of the corporation, citing higher than optimal operating costs and unsuccessful acquisitions.
Noting that the purchase of Trimble was a good move strategically, TAFE asks as to whether the AGCO management has, or is even capable of, successfully integrating the technology into the corporation’s product range.
AGCO has a particular issue here and it is one that has plagued the corporation for years and that is the three brands are in fierce competition with each other.
True, TAFE is a multi-brand company as well, but those brands appear to be controlled from the centre and are relatively low tech, whereas the AGCO companies are more independent and are forging different paths through the technology jungle, they are not always well disposed to acting in unison with each other.
Imposing a single digital platform upon the three competing siblings is not going to be an easy task and it is one that TAFE may well be underestimating the difficulty of.
AGCO responds
In its response to the letter, AGCO hints at this when it notes that “TAFE’s interests are fundamentally misaligned with AGCO shareholders”, which may well be interpreted as reminding TAFE, and the wider world, that they are two different companies serving two different markets.
AGCO is also at pains to point out that its board is regularly refreshed in answer to another complaint of TAFE’s, and despite owning 21% of TAFE’s shares, the corporation has made no comment upon the TAFE board or the way in which the Indian company is run.
It has instead opted for a more direct mode of action and in a separate move to the original cessation of dealings with TAFE the American corporation has:
“Delivered termination notices, with immediate effect, of its: (i) Massey Ferguson brand license agreement with Tractors and Farm Equipment Limited (TAFE); (ii) a distributor agreement with TAFE for the markets of India, Nepal and Bhutan; and (iii) an intellectual property license agreement with TAFE for the markets of India, Nepal, Sri Lanka, Bangladesh and Bhutan.”
This signals that it will be strongly contesting the action taken by TAFE to take ownership of the MF brand in India, yet whether this latest move violates the status quo order of late April is not entirely clear.
Indeed, AGCO also has commenced further legal proceedings against TAFE in India relating to the use of the Massey Ferguson brand following the delivery of the various termination notices.
As far as AGCO is concerned TAFE is now no longer an approved licensee for the Massey Ferguson brand or any Massey Ferguson products for trade in India, Nepal, Sri Lanka, Bangladesh and Bhutan.
In addition to the legal manoeuvrings noted above, another case concerning the business dealings of the two has been settled in AGCO’s favour.
It has emerged that there was a dispute over a Turkish supply contract which TAFE declined to submit to arbitration.
The Supreme Court has ruled in favour of AGCO, although this has no legal bearing on any of the other disputes between the two parties.
A messy divorce
Whatever the outcome of the various proceedings, it is clear that the trading relationship between the two has irretrievably broken down.
TAFE is dearly wanting to hold on to the MF name for it is a well-established brand and therefore retains a high value. Likewise, AGCO will also want to supply into the Indian market using the name and will be fighting tooth and nail to prevent TAFE from appropriating it.
The stage is set for an epic battle that may yet spill over into the west as AGCO will need to pour resources and management time into India which may detract from the efforts devoted to developing the western market.
