Home > Mergers & Acquisitions > Joy Global in $1.1bln deal for LeTourneau

Joy Global in $1.1bln deal for LeTourneau

May 19, 2011

“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

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