Zoomlion bids for $340m stake in Chery

China's Zoomlion Heavy Industry Science and Technology Co Ltd said over the weekend that it was bidding to acquire a 60 percent stake in farm machinery maker Chery Heavy Industry Co Ltd for 2.09 billion yuan ($340 million).

Zoomlion, seeking to profit from Chinese government's drive to promote large-scale rural modernization, said the move could help propel the company to "become a leading agricultural machinery enterprise in China."

The deal comes as major Chinese construction equipment makers such as Zoomlion and Sany Heavy Industry respond to a drop in demand for machines to build high-rise blocks, bridges and roads in the domestic market. Zoomlion issued a profit warning last month citing sluggish demand.

The firm, based in Changsha, capital of Central China's Hunan Province, said it is seeking to acquire 1.8 billion shares in Chery Holding. Chery's turnover last year was "one of the highest among the agricultural machinery enterprises in China," the statement said.

The deal will also help Zoomlion compete with international firms like John Deere and CNH Industrial NV, controlled by Fiat SpA.

Global farm machinery peers have also expanded in China, lured by the Chinese authorities' determination to retool a farming industry where annual gross output is far behind the US level.

Zoomlion chairman Zhan Chunxin told Reuters in March he was open to various acquisition opportunities. Over the past three years, the company has explored deals outside the construction machinery segment, including commercial vehicle partnerships and the acquisition of manufacturers that make street-cleaning machines, Zhan said.

Fiat's CNH has opened three additional plants in China since last year, including a $100 million factory in Harbin, Northeast China's Heilongjiang Province, capable of making machines from planters to hay tools.

"Mechanization is key to the development of agriculture in China and it's a big driver of our business here as well," CNH Industrial's China chief Luca Biagini said in a recent interview.