Deere & Co. (DE) announced that it will sell its wind energy business, John Deere Renewables, LLC, to Exelon Corp.’s (EXC) wholly owned subsidiary, Exelon Generation Company. The deal, valued at $900 million, includes a provision for $40 million upon commencement of construction of the advanced development projects.
Pursuant to regulatory approvals, the transaction will close by the end of fiscal 2010 and Deere will record an after-tax charge of approximately $25 million in its fourth quarter results. During its third quarter earnings call, Deere had announced its fourth quarter net income guidance of approximately $375 million. The abovementioned charge was not included in the same.
John Deere Renewables invests in, and provides value-added services for, wind project development. These services include comprehensive project development services, wind turbine supply and operation management as well as long-term debt and equity investment for wind energy projects in the U.S. and Canada.
John Deere Renewables’ portfolio comprises 36 completed projects in eight states with an installed, operating wind capacity of 735 megawatt that is enough to power 160,000 to 220,000 households as well as other projects in the pipeline. The pipeline comprises 1,468 megawatts of new wind projects that are, currently, in various stages of development, including 230 megawatts in advanced stages of development.
In 2005, Deere established its wind energy business unit managed by its Credit segment. Since then, the company has invested over $1 billion in financing, development and ownership of wind energy projects. The company spearheads project development, management and financing of wind energy projects in rural U.S. communities.
The wind business was not in line with Deere’s core set of businesses. As a result, in February 2010, the company had divulged that it was weighing strategic options for its wind energy business, which included a possible sale. In this regard, Deere had retained Goldman, Sachs & Co., a wing of The Goldman Sachs Group Inc. (GS), as exclusive financial advisor.
Chicago-based Exelon Corporation is an electric utility company operating through its subsidiaries Generation, ComEd and PECO. The generation business consists of electricity generating facilities, wholesale energy marketing operations and competitive retail supply operations. It has access to more than 38,000 megawatts of electricity and generates electricity through nuclear, fossil and hydroelectric generation facilities. With this acquisition the company will make an entry into the wind power business.
We believe the sale will enable Deere to focus more on its main operation of manufacturing agricultural and construction equipment. We maintain our Outperform rating on Deere supported by Zacks #1 Rank (Strong Buy) on Deere.
Illinois-based Deere & Company is engaged in the production and distribution of agricultural and forestry equipment, construction equipment and engines worldwide. It also provides financial and other related services. The company operates through three segments: Agriculture and Turf, Construction and Forestry, and the Financial Services segment. Deere sells products through branch offices in the U.S. and Canada as well as through distributors and dealers for the resale of products internationally.