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CNH Aims Investment Grade Credit Rating

AGCO ALG

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As farm and construction equipment manufacturer CNH Global NV debuts on the New York Stock Exchange today, it is aiming for an investment grade credit rating to attract more investors and tap the U.S. credit markets for more funds. At the same time, the company expects to lower its interest burden with easy access to the credit markets. Moving forward, CNH Global aims to judiciously use the money saved from lower interests to return cash to shareholders in the form of dividends.

In Nov 2012, Fiat Industrial, the parent company of CNH Global, had inked a definitive agreement to merge its businesses with the latter. The merged company was planned to be registered under the laws of the Netherlands and listed on the New York Stock Exchange. However, for corporate tax purpose, it would be based in the U.K. as the region offers a lower corporate tax rate than Italy.

The strategic merger facilitated Fiat Industrial to shift its base from Italy, which has been hit by four recessions since 2001. The successful integration of both the businesses fortified the combined entity to compete at the highest level in the capital-goods sector with adequate flexibility to pursue inorganic growth at opportune times.
 
The combined company will focus more on the excavator segment as CNH Global had ended its long-term alliance with Japanese company Kobe Steel, Ltd. and group company Kobelco Construction Machinery Co., Ltd. on Dec 31, 2012. Post-merger, the newly formed company would be the world’s third-largest capital-goods company with a product line spanning from Iveco delivery trucks, New Holland harvesters to FPT ship engines.

Fiat Industrial is a leading international auto manufacturing company that designs, produces and sells vehicles for the mass market under well-known brands such as Fiat, Alfa Romeo, Lancia, Abarth, the Ferrari and Maserati. It also has a strategic alliance with premier auto major, the Chrysler Group, to further expand its geographic presence.

The merger of Fiat Industrial and CNH Global is likely to sow the seeds of a similar endeavor and will serve as a “technical blueprint” for a likely merger between the former and its Chrysler division in the U.S.

Based in Amsterdam, CNH Global manufactures agricultural and construction equipment. The company primarily sells and distributes its products through its dealers and distributors spread across 170 countries. On Nov 12, 1999, CNH Global was formed following the merger of New Holland N.V. and Case Corporation.  The company has three operating segments – Agricultural Equipment, Construction Equipment, and Financial Services.

CNH Global presently has a Zacks Rank #3 (Hold). Other notable companies in the industry include AGCO Corporation (AGCO - Analyst Report) that retains a Zacks Rank #2 (Buy), and Kubota Corporation and Alamo Group, Inc. (ALG - Snapshot Report), both carrying a Zacks Rank #1 (Strong Buy).

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