March 15, 2018 Vol. 24, Issue 3 • Tariff Impacts on Ag • New Deutz Distributor • Ethanol Exports Up RFS Tussle with Big Oil Could Have Long Term Impact on Ag While steel tariffs are currently grabbing U.S. Corn Production 1937–2017 (000s bu) most ag headlines these days, possible changes to the Renewable Fuel Standard (RFS) may produce longer term chal- lenges for U.S. agriculture. Battle lines between oil refiners and ethanol pro- ducers and their suppliers (corn grow- ers) have been clearly drawn. In large part, ethanol has literally fueled much of the growth U.S. agricul- ture has experienced in the past dozen years because corn is the principal feed- stock in producing the fuel additive. Since the use of ethanol (or biofuels) was mandated in 2005, U.S. corn pro- Source: USDA, NASS, Crop Production 2017 Summary, Jan. 12, 2018 duction as grown from about 10 billion bushels a year to slightly over 15 bil- production has been very, very good for of corn used in 2017, 30% went into lion bushels by 2016, or by about one- agriculture and neither corn growers production of fuel ethanol and another third. During this time, ethanol has made nor ethanol producers want to cede any nearly 9% was used for DDGS, or dried up about 10% of the total gasoline fuel of that growth. distillers grain with soluble, a co-prod- consumption. In other words, ethanol Overall, of the 14.3 million bushels Continued on page 11 GKN-Dana Tie Up Would Create World’s Largest Axle & Driveline Components Supplier The off-highway powertrain activities which we see as the future of vehi- the Wall Street Journal, Dana execu- of the U.K.’s GKN engineering group, cle drivetrains.” tives say the tax strategy is designed together with its GKN Driveline auto- The new Dana plc (public limited to take advantage of a lower tax rate motive business unit, are to be com- company) will be domiciled in the and to assuage concerns about its bined with Dana Inc. in a new entity. U.K. but its shares will trade on the commitment to GKN’s manufactur- With pro forma sales of approxi- New York Stock Exchange. Current ing operations in the U.K. The U.S. mately $13.4 billion in 2017, the com- Dana shareholders are expected to recently cut its corporate tax rate to pany will be the global leader in vehi- own almost 53% of the business once make American companies more com- cle drive systems across all three major the transaction completes, with GKN petitive globally and keep them from mobility markets — light vehicle, com- shareholders receiving 133 million seeking better tax treatment abroad. mercial vehicle and off-highway. Dana plc shares to own approxi- But Dana CFO Jonathan Collins said James Kamsickas, president and mately 47%. In addition, Dana is pay- the combined company would save CEO of Dana, said, “This transforma- ing $1.6 billion cash to GKN plc and $600 million in a more beneficial tax tive and strategic transaction solidi- assuming $1 billion of net pension environment abroad. fies Dana as a world leader in vehicle fund liabilities. Under the deal, the Hostile Suitor. The transaction arises drive systems and establishes a lead- new entity will be called Dana PLC. from a hostile take-over bid for GKN ing position in electric propulsion, According to a March 9 report in Continued on page 2 The contents of this report represent our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Individual companies reported on and analyzed by Lessiter Media, may be clients of this and other Lessiter Media services. This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securities. GKN-Dana Tie Up Would Create Largest Axle & Driveline Components Supplier ...Continued from page 1 plc from a U.K.-based business re-struc- — notably aerospace — have grown. ations in the U.K., Italy and Denmark, as turing specialist, which the WSJ report In 2016, the group disbanded its GKN well as in Armstrong, Iowa, Woodbridge, called “a nasty battle for the British parts Land Systems division in a £14 mil- Ill., and Wichita, Kan. maker,” as the proposed takeover pits lion restructuring (see Ag Equipment The WSJ report goes on to say that Dana against a bid from turnaround spe- Intelligence, December 2016). representatives for Melrose criticized cialist Melrose Industries, which wants GKN’s Walterscheid shafts, cou- the terms of the Dana deal, calling it all of GKN in a hostile offer of £7.4 bil- plings and gearbox operations were a “hasty sale” that won’t benefit GKN lion ($10.25 billion). According to WSJ, moved into GKN Drivelines, which shareholders. “Today’s announce- GKN, listed in London, is turning its is the division being combined ment changes nothing and is a fur- attention to aerospace and seeking to with Dana, while GKN Wheels & ther admission of the management sell its auto business. Structures, which manufactures axle failure of GKN,” Melrose Chairman In response to the Melrose take- hub assemblies and steel rims for agri- Christopher Miller said. over, GKN managers decided to raise cultural and construction equipment, The new venture is expected to cash selling off business areas identi- operated as a standalone business. pull in $14 billion in annual revenue, fied as being non-core and floated This operation has been identified for with customers ranging from General the prospect of separating its auto- disposal by the current management, Motors Co. to agricultural equipment motive and aerospace activities. Off- headed by GKN’s American chief exec- maker Deere & Co. Truck makers, highway has been a declining sector utive, Anne Stevens. GKN Wheels & including Pacaar Inc. and Volvo AB, are for GKN as other parts of the business Structures has rim manufacturing oper- also customers. Increasing Tire Sales Stokes Titan International’s Optimism for 2018 Tire and rim maker Titan million for the same period in 2016. Corp.) violated rules governing the International’s newest board direc- Reitz commented, “Our top line disposal of a hazardous substances. tor is optimistic that the Quincy, growth of over 21% includes improve- Reitz concluded, “We saw raw Ill.-based group will continue to ments beyond this amount within material costs stabilize during the make sales and profitability prog- both our agricultural and earthmov- third quarter, when improving perfor- ress through 2018. ing/construction segments. We con- mance brought in a 14% gross profit Paul G. Reitz, president & CEO, was tinue to see the benefits of our strate- improvement over the previous year. appointed to the board of directors gic investments over the past couple “Our adjusted EBITDA for the quar- at the beginning of December with of years and to win new business in ter increased significantly by 64% the support of Maurice Taylor, Titan’s our aftermarket channels. to $18.9 million, which is encourag- chairman. “Paul’s leadership and “In general, the North American ing when this period includes plant vision have been well demonstrat- OEM market remains challenging shutdowns and summer holidays. ed since he joined Titan and these with lower volumes and tougher pric- We expect gross profit improvement strengths, along with his background ing, but we are encouraged by signs of between 25-40% and to increase and knowledge of our business, will of stronger end markets that should EBITDA in the 50-100% range during make him an excellent board mem- provide some long awaited tailwinds 2018,” Reitz said. ber,” said Taylor. heading into 2018.” Titan has seen a turnaround in sales Titan recorded a net loss of $33.7 AEI Copyright Notice over the past 12 months, reporting million vs. $32.5 million in the year a 14% increase in net sales revenues prior, for the first 9 months of 2017. Ag Equipment Intelligence is a copyrighted publication of Lessiter over the first 9 months of 2017 after The company has been working Media. Copying an entire issue to a challenging 18 quarters of decline. to drive down sales, general and share with others, by any means, is The fourth quarter of 2016 came administration expenses, which illegal. Duplicating individual items in level with the year prior at $307.3 are down approximately $3 mil- for internal use is permitted only with million, but the following quarters lion year-over-year when a $6.5 mil- permission of the publisher. Licensing agreements that allow distribution saw growth of 11%, 10% and 21% cul- lion contingent liability relating to of Ag Equipment Intelligence to a minating in third quarter net sales of a legal judgement is excluded. 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