Caterpillar acquires Bucyrus to increase domination of construction and mining sectors

Caterpillar Inc. and Bucyrus International, Inc. have announced that 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).

This acquisition significantly increases Caterpillar's domination as a supplier to the building, construction, demolition, quarrying and mining sectors. Historically, always a supplier to the mining industry, the range of products that Bucyrus brings to Caterpillar extends the groups ability to supply a vast range of high-production surface and underground mining.

Questions to be answered are product rationalisation as Bucyrus recently acquired Terex mining division with its mining excavators and dump trucks. Caterpillar has also announced its own range of mining excavators. Which range will be given priority has yet to be announced.

At the first opportunity, Contractors World will try to determine what rationalisation is involved and, of course, this extends to dealer networks and product supports services.

The announcement went on to say that 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.

Under the terms of the transaction, which has been approved by the boards of directors of both companies, Bucyrus shareholders will receive $92 per share, $7.6 billion in aggregate consisting of all cash.

The transaction represents an implied premium of 32 percent to Bucyrus' share price as of November 12, 2010. Caterpillar will fund the acquisition through a combination of cash from the balance sheet, debt and up to $2 billion in equity. The transaction is expected to close in 2011. Caterpillar intends to locate its mining business headquarters in South Milwaukee, Wisconsin, where Bucyrus headquarters is currently located, and maintain the Bucyrus brand for the principal Bucyrus legacy products.

“For several years, mining customers have been asking us to expand our range of products and services to better serve their increasingly complex requirements,” said Caterpillar Chairman and CEO Doug Oberhelman. “This announcement says to those customers, we heard you loud and clear. It is a strong statement about our belief in the bright future of the mining industry. Our strategy calls for disciplined investment in attractive industries that value our product and service delivery model," Oberhelman said.

"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. This, and other recent acquisitions, will position Caterpillar for industry leadership and will be positive for our stockholders, customers and employees.”

Tim Sullivan, Bucyrus President and CEO, said,

“This is an outstanding and financially compelling transaction for our shareholders. More fundamentally, it is a testament to the tremendous value our talented team of employees has created over the past several years and to the strength of our brand in the global mining machinery marketplace. I am confident that we have found an excellent partner in Caterpillar.

Caterpillar is a first-rate global company and it shares our commitment to providing innovative products and exceptional service to customers, creating a collaborative and safe work environment for employees and minimizing the impact on the environment.

We are very pleased that Caterpillar has committed to locate its mining business headquarters in Milwaukee and we are confident that the combined global platform will be extremely well positioned to capitalize on the substantial growth opportunities in this market in the years ahead.”

The closing of the transaction is subject to regulatory approvals, customary closing conditions and approval by Bucyrus stockholders.

At that time, Caterpillar Group President Steve Wunning will have office 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,” Wunning said. “This combination, as well as the significant expansion in products and facility capacity already announced, gives us the opportunity to expand the range of surface and underground mining products and solutions offered to customers by Caterpillar and its dealer network.”

A driving motivation for the transaction is Caterpillar’s estimate of more than $400 million in annual synergies beginning in 2015 derived from the combined financial strength and complementary product offerings of the combined mining equipment businesses.

Synergies driven by the acquisition include:
         Market leading sales and support capabilities of Caterpillar dealers and a broad, one-stop shop for global mining customers
         Caterpillar Remanufacturing products and services for Bucyrus equipment
         Caterpillar engines and components to enhance performance and lower owning and operating costs for Bucyrus equipment
         Additional scale and cost efficiencies in areas such as purchasing and engineering
         Deployment of manufacturing best practices through the Caterpillar Production System

Second acquisition in just a few months

The announcement on acquiring Bucyrus follows on from the recently announced agreement to acquire MWM is a leading global supplier of highly sustainable alternative engines from 3i and funds managed by 3i. operation in Mannheim, Germany.

With the acquisition of MWM, Caterpillar will significantly expand customer options for sustainable power generation solutions. The total transaction value amounts to €580 million (approximately $810 million) and will be paid in cash. MWM has more than 135 years of experience in the development and optimization of combustion engines for natural gas, special gases and diesel.

“MWM is recognized for its leading technology and product strength, particularly for its highly efficient range of engines, combined heat and power and trigeneration solutions capable of operating on a wide range of gaseous fuels including natural gas, biogas, mine gas and industrial waste gas,” said Caterpillar CEO Doug Oberhelman.

“This is a natural complement to Caterpillar’s existing diesel and gas power generation business and demonstrates our commitment to continued investment in sustainable products and industries,” Oberhelman added.

“We are very pleased about the development MWM experienced over the last three years. In close collaboration with the MWM management and its employees, we developed and implemented a broad number of strategic and operational improvement initiatives. We also made significant investments in the Company’s production facilities, research and development platform and distribution network. Today, MWM has a highly skilled and motivated workforce, best-in-class products as well as a very efficient sales organization and production facilities,” said Peter Wirtz, partner and managing director of 3i Germany. “Beyond our accomplished mission of transforming MWM’s positioning, we strongly believe in the long-term success of the Company under Caterpillar’s ownership,” Wirtz continued.

“We highly appreciate 3i’s support and believe that Caterpillar provides the best prospects for the next step of our development, given its worldwide network which will open up new distribution and growth opportunities to us,” said Peter Grosch, chairman of MWM.

MWM will become part of Caterpillar’s Electric Power Division (EPD), which supplies natural gas and diesel generator sets and integrated power systems involved in the generation, control and supply of electricity. EPD operates in more than 50 locations around the world.

The integration of MWM will result in important synergies leveraging the two companies’ existing product ranges, advanced engine technologies, research and development resources, manufacturing, distribution and customer support capabilities.

“The gas engines industry is a great fit for Caterpillar’s energy and electric power systems business. Together with the two companies’ premium products, technology and global distribution network, our comprehensive offerings will deliver sustainable power -3- (more) system solutions for our global customers,” said Bill Rohner, Caterpillar vice president with responsibility for Electric Power. The acquisition is expected to close in the coming months, pending final regulatory approvals.

2011 - A year of anticipation

The above acquisitions will obviously involve some rationalisation, especially from the Bucyrus product range which does conflict with some plans by Caterpillar in the mining truck and mining excavator lines. Other products can be expected to be modified to bring components in line with Cat components for easier servicing, lower parts inventory and economies of scale.

ConExpo/Con-Agg - the major trade show for the construction industry in 2011 - which takes place in Las Vegas in March will be interesting not only because of these acquisitions but also the introduction of the Cat highway trucks also reported on in this issue.

Caterpillar will also ensure that core market sectors are not overlooked. It is expected that there will be some major announcements in the general construction equipment range covering all sectors from the small building machines through to the larger contracting plant and equipment. Technology will also be in evidence as the company, together with its technology partners, strives to increase operating efficiency and productivity.

News resource: Contractors World

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