Deere Dumps Its Wind Unit (DE, EXC)

Wind power is supposed to be one of the cleanest sources of power out there.  Unfortunately, at least for now, it is not one of the most profitable sources of power.  Deere & Company (NYSE: DE) has just announced the sale of its wind power unit called John Deere Renewables, LLC.  Exelon Corporation (NYSE: EXC) is acquiring it via the Exelon Generation Company subsidiary.  The price tag, approximately $900 million.

Deere claims that this operation sale will allow the company to sharpens its own strategic focus after it concluded that resources are better invested in other growth areas of the company.

The $900 million sale does include earn-out provisions and the sale will also result in an after-tax charge of approximately $25 million in its fiscal fourth quarter. This charge was also not reflected in Deere’s fourth quarter earnings forecast of approximately $375 million that was announced just back on August 18th.

As far as what is Exelon is getting, the John Deere Renewables includes 36 completed projects in eight states.  Those projects have an operational capacity of 735 megawatts.  The definitive sale also includes the completed projects plus “numerous others in development.”

When you see sales like this it generally translates to a focus on the core business and a move away from some other more volatile areas that have not lived up to expectations.  When you have seen many other alternative energy plans fall through and when you saw T. Boone Pickens’ giant wind project fall apart, that means many companies around the country had valuation issues for what they were hoping would be the next great growth opportunity.

Some projects work and are viable.  Some are not.  By the sound of the sale, this one falls somewhere in between.

JON C. OGG