Caterpillar to buy Bucyrus for $8.6 bn

Caterpillar Inc, the world’s largest maker of construction and mining equipment, agreed to buy Bucyrus International Inc for $7.6 billion to add shovels, draglines and drills to its product range.

Bucyrus shareholders will receive $92 a share, Peoria, Illinois-based Caterpillar said today in a statement. The deal is valued at $8.6 billion including net debt, Caterpillar said. The offer represents a 32 per cent premium to South Milwaukee, Wisconsin-based Bucyrus’s Nov. 12 share price of $69.62.


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“The mining industry is very attractive to us for the long term,” Caterpillar Chief Executive Officer Doug Oberhelman said in a Bloomberg Television interview on “In the Loop” with Betty Liu. “With all the things going on around the globe with globalisation, urbanisation and demand for minerals, things in the earth, we will be strong for a long period of time.”

Caterpillar is expanding its mining business as coal and metals producers raise investment to meet growing demand from emerging economies. The company has already announced plans this year to invest $700 million developing trucks and shovels. Growth in mining may help Oberhelman raise earnings to $8 to $10 a share in 2012 and boost sales to as much as $60 billion.

Bucyrus rose $20.24, or 29 per cent, to $89.86 as of 10:03 am in Nasdaq Stock Market trading. Caterpillar rose 53 cents to $81.57 on the New York Stock Exchange.

Emerging markets
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 per cent premium being paid by Caterpillar compares with the 28 per cent 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 per cent 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.