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Joy Global in $1.1bln deal for LeTourneau
“Joy Global, one of the biggest makers of mining equipment, has struck a $1.1bn deal to buy LeTourneau Technologies from Rowan Companies in a further sign of consolidation in the sector. The acquisition comes six months after Caterpillar, the biggest maker of earthmoving equipment by revenue, paid $7.6bn for Bucyrus International, a US maker of mining machinery which is Wisconsin-based Joy Global’s main rival. By strengthening Caterpillar’s position as the top mining equipment maker, that deal put pressure on Joy Global to do a merger or acquisition in order to become a bigger player in a fast-growing global market that is estimated to be worth some $40bn annually. The two acquisitions demonstrate bullishness among heavy equipment makers about the long-term strength of commodities and extractive industries, particularly in emerging markets.” Source: Financial Times, May 17 2011
Observations:
- LeTourneau’s mining division mainly produces front-end loaders and dozers. However, most of the company’s revenues come from sales of onshore and offshore drilling equipment.
- Joy Global is broken down over P&H (mainly drills, draglines, shovels) and Joy Mining Machinery (strong in continuous mining equipment and longwall equipment).
Implications:
- The acquisition of LeTourneau provides expansion of the portfolio, access to knowledge in the drilling business, and access to the strong supply chain to emerging countries. On top of this new potential Joy hopes to achieve a $40mln cost saving, which corresponds to approx. 1% of combined revenues.
- Caterpillar/Bucyrus still is about 10x the size of Joy/LeTourneau. The lack of supply capacity and the blanks in the product portfolio will make it impossible for Joy to be a one-stop shop for all equipment as Caterpillar aims to be. By strategically picking niche markets in which the company is particularly strong (e.g. longwall mining, drilling) it can compete with Caterpillar and Komatsu.
©2011 | Wilfred Visser | thebusinessofmining.com
Caterpillar to Acquire Bucyrus
“Caterpillar Inc. (NYSE: CAT) and Bucyrus International, Inc. (Nasdaq: BUCY) announced today they have entered into an agreement under which Caterpillar will acquire Bucyrus International in a transaction valued at approximately $8.6 billion (including net debt). The acquisition is based on Caterpillar’s key strategic imperative to expand its leadership in the mining equipment industry, and positions Caterpillar to capitalize on the robust long-term outlook for commodities driven by the trend of rapid growth in emerging markets which are improving infrastructure, rapidly developing urban areas and industrializing their economies.”
Source: Caterpillar Press Release, November 16 2010
Observations:
- Bucyrus has a product portfolio including drills; draglines; shovels; excavators; mining trucks; highwall, longwall and room & pillar miners; and belt systems. This portfolio complements the position of Caterpillar, which is mainly strong in loaders and trucks in the mining industry. Sales are roughly equally divided over surface and underground mining equipment.
- The offer worth $8.6bln is all cash, forcing Caterpillar to increase debt by approx. $5bln and equity by approx. $2bln. However, as Caterpillar is more highly leveraged than Bucyrus, the deal will actually help CAT to reduce leverage.
Implications:
- The premium of 32% will have to be justified by synergies that are mainly to be found in consolidation of the supply chain, dealer and service network and in the potential for increased revenues as the Caterpillar gains a stronger position to be the sole-source supplier of mines
- The closing of the deal is subject to regulatory approvals, which might force Caterpillar to divest some assets in order to prevent a dominant position in several markets. Especially in the area of mining trucks the new company becomes a dominant player, as Bucyrus bought the mining division of Terex early this year.
©2010 | Wilfred Visser | BlogCatalog | thebusinessofmining.com
