Caterpillar Inc., the world’s biggest manufacturer of construction and mining equipment, just decided to get bigger. Caterpillar is buying mining equipment company Bucyrus International for $7.6 billion in cash. The Wall Street Journal describes the deal:
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.
BHP Billiton, the Anglo-Australian mining giant that just dropped a $39 billion acquisition offer for Potash Corp. of Saskatchewan, accounted for about 14% of Bucyrus’s 2009 sales.
The New York Times DealBook has additional details:
The purchase of Bucyrus will help Caterpillar expand its global footprint in the mining equipment industry, Bucyrus specializes in large-scale surface and underground equipment for the extraction of coal, copper and other minerals. The company recorded $2.65 billion in revenue in 2009, with more than 60 percent of its business originating outside of the United States.
Caterpillar, based in Peoria, Ill., has stepped up its own acquisition efforts in the last six months. In late October, the company purchased the engine maker MWM Holding from the private equity firm 3i for 580 million euros ($810 million) in cash. In June, Caterpillar paid $820 million for Electro-Motive Diesel, a major manufacturer of locomotives in the United States. Still, Bucyrus is by far the largest acquisition ever attempted by Caterpillar.
“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 Douglas
R. Oberhelman, Caterpillar’s chief executive and chairman. “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.”
Caterpillar’s purchase reflects the mixed nature of the mining industry, which is both responding to a boom in certain commodities, like gold, and experiencing fallout from the recession. From a PriceWaterhouseCoopers report:
The mining industry, at first thought to be somewhat insulated from the debt crisis, is now fully impacted amid falling demand, tumbling commodity prices, high operating and capital costs and falling share prices. New mines will be rare. Under-performing mines, or those with cost over-runs will be carefully scrutinised for potential closure. Cash conservation and cost management is the order of the day. Mid and lower tier companies will need further debt/equity to fund development but face constraints in sourcing funds. There will be opportunities for cash rich companies to look beyond the downturn to make strategic acquisitions at bargain prices.
Caterpillar, like many companies in the news today, is proving that in a recession, it pays to be big and cash-rich.