Caterpillar in $ 8.6 billion acquisition of Bucyrus

By Helen Wright15 November 2010

Caterpillar has agreed to buy US-based mining equipment company Bucyrus International in a deal valued at approximately US$ 8.6 billion (€ 6.3 billion) - the biggest acquisition in its over 85-year history.

The all-cash transaction will accelerate Caterpillar’s expansion into the mining sector and comes less than a year after rival equipment manufacturer Terex sold its mining business to Bucyrus International for US$ 1.3 billion (€ 954 million) in cash.

Under Caterpillar’s offer, Bucyrus shareholders will receive US$ 92 per share (€ 67), valuing the firm at US$ 7.6 billion (€ 5.6 billion) in aggregate - a figure which rises to US$ 8.6 billion including net debt.

Expansive Caterpillar said the deal - which represents a 32% premium to Bucyrus’ share price as of 12 November - reflects its confidence over commodity prices and the growth of mining in emerging markets.

“[The acquisition] positions Caterpillar to capitalise on the robust long-term outlook for commodities driven by the trend of rapid growth in emerging markets”, the company said, adding that it expects to report over US$ 400 million (€ 293 million) in annual synergies from 2015 on the back of the deal.

The acquisition will see the Bucyrus brand retained for principal legacy products, while its main offices in Wisconsin will become the headquarters for Caterpillar’s mining business.

Caterpillar will fund the transaction through a combination of cash from its balance sheet as well as debt, and up to US$ 2 billion (€ 1.5 billion) in equity. The agreement is subject to regulatory approvals and is expected to close in mid-2011.

When the deal is sealed, Caterpillar group president Steve Wunning will assume executive accountability for Bucyrus, along with his current responsibilities for the company’s mining business.

“Even today at mine sites around the world, our customers are using Bucyrus shovels to load Caterpillar mining trucks,” Mr Wunning said.

The complementary tie-up will allow Caterpillar to expand its surface and underground mining products significantly, he added.

Caterpillar chairman and CEO Doug Oberhelman said the acquisition was driven by demand from the company’s customers to expand the product range.

“This announcement says to those customers, we heard you loud and clear,” Mr Oberhelman said, explaining that the deal also represents “a strong statement about our belief in the bright future of the mining industry”.

Last year, rival Terex signaled a shift away from the construction and mining equipment markets when it sold its mining business - which included brands such as O&K, Unit Rig, Reedrill, Superior Highwall, Halco and Hypac - to Bucyrus.

Bucyrus reported revenues of US$ 2,6 billion (€ 1.9 billion) in 2009, and said December’s Terex deal allowed it virtually to double its market opportunity to US$ 30 billion (€ 22 billion), and increased its installed base of mining machinery by US$ 10 billion to US$ 40 billion (€ 29 billion).

Caterpillar, meanwhile, reported revenues of US$ 32.3 billion (€ 23.7 billion) last year.

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