Caterpillar Deals To Buy Bucyrus For $7.6 Billion
Caterpillar Deals To Buy Bucyrus For $7.6 Billion
Caterpillar Deals To Buy Bucyrus For $7.6 Billion :Caterpillar said the deal is the biggest acquisition in the company's history. Bucyrus shareholders are slated to receive $92 a share, a 32% premium to the company's stock price on Friday. Shares opened roughly 30% higher this morning, and share prices of other mining and equipment companies, including Joy Global, Terex and Manitowoc, also opened higher. Caterpillar is taking advantage of low interest rates and cheap financing; the company plans to fund the deal with cash on hand, debt and up to $2 billion in equity.
The purchase price works out to $92 per share, a 32 percent premium to Bucyrus' closing price on Friday. The deal, which is valued at $8.6 billion including debt, is expected to close in mid-2011.
Bucyrus is based in South Milwaukee, Wis. It makes surface mining equipment used for mining coal, copper, iron ore, oil sands and other minerals.The deal requires approval by regulators and Bucyrus shareholders.Caterpillar of Peoria, Ill., said Monday it's buying the company to expand its mining business and take advantage of rapid growth in emerging markets.
To land Bucyrus International Inc., based in South Milwaukee, Wis., Caterpillar will pay $92 per share, a 32 percent premium to Bucyrus' closing price on Friday. The deal, which is valued at $8.6 billion including debt, is expected to close in mid-2011.
Shares of Bucyrus jumped 30 percent in premarket trading to $90.26.
Caterpillar during the economic downturn made drastic cuts, vowing then that it would be in a better position when the economy rebounded. It cut 19,000 full-time and 18,000 contract and part time workers.
The company now appears ready to make good, making a strong big to grab market share anywhere that demand is strong.
"Our performance through the global economic turmoil of 2008-2009 allowed us to emerge with a strong balance sheet and the ability to make strategic investments in companies like Bucyrus," said Caterpillar Chairman and CEO Doug Oberhelman
The Peoria, Ill. company said last month it expects the global economy to grow by about 3.5 percent next year, on par with economists' forecasts. But the company predicts developing regions will grow at about double that rate. And even in the emerging economies where growth is slower, Caterpillar said the replacement of worn out machinery will drive sales even before those economies markedly improve.
The deal requires, which got the go-ahead from both company boards, still requires approval by regulators and Bucyrus shareholders. The company expects to save about $400 million a year starting in 2015 from the acquisition.
The Bucyrus acquisition would be the largest announced in the construction and mining machinery industry in the past five years, according to data compiled by Bloomberg. The 32 percent premium being paid by Caterpillar compares with the 28 percent average paid in the industry in that period.
Bucyrus gives Caterpillar an opportunity to gain from growth in emerging markets and tap a business with extensive after-market parts and services opportunities, Larry De Maria, an analyst at Sterne, Agee & Leach in New York who has a "neutral" rating on the shares, said in an interview.
"For Caterpillar, this is clearly a major acquisition and in line with what they are looking for but bigger than expected," De Maria said.
Mining companies' capital expenditure globally will increase by more than 15 percent in 2011 as commodity prices rise, Stephen Volkmann, a Jefferies & Co. analyst in New York, said in a report. There's little overlap between Caterpillar's and Bucyrus's products, he said.
Caterpillar was advised by JPMorgan Chase & Co. and its legal advisers were Mayer Brown LLP, Sidley Austin LLP and Howrey LLP. Bucyrus was advised by Deutsche Bank AG, UBS AG. Its legal advisers were Sullivan & Cromwell LLP and Arnold & Porter LLP.
The purchase price works out to $92 per share, a 32 percent premium to Bucyrus' closing price on Friday. The deal, which is valued at $8.6 billion including debt, is expected to close in mid-2011.
Bucyrus is based in South Milwaukee, Wis. It makes surface mining equipment used for mining coal, copper, iron ore, oil sands and other minerals.
The deal requires approval by regulators and Bucyrus shareholders.
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