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Last updated: November 15, 2010 7:48 pm
Caterpillar, the world’s biggest maker of earthmoving equipment by revenue, took a long-term bet on commodity prices and emerging market growth by striking an $8.6bn (£5.3bn) deal to acquire Bucyrus International, a US manufacturer of mining machinery.
The London Metal Exchange’s index – a basket of the cost of aluminium, copper, lead, nickel, tin and zinc – rose last week to a 2-year high above 4,000 points, nearing the 2007 all-time high.
Caterpillar, an industrial bellwether and Dow component, offers a relatively narrow range of mining equipment compared with rivals such as Joy Global of the US and Japan’s Komatsu.
Purchasing Bucyrus will enable the company to offer the widest range of mining equipment of any global manufacturer and take a bigger share of the $30bn market.
The deal – the biggest in the company’s history and in the mining industry for several years – will accelerate the pace of Caterpillar’s expansion into the sector.
It follows the company’s announcement in June of a $700m three-year expansion into the mining equipment market, including plans to begin production of a full range of mining shovels for the first time.
“There’s no way that we’re not into a very strong, sustainable commodity cycle,” Tim Sullivan, Bucyrus chief executive, said.
“When I entered the business world, three-fourths of the world was closed – China, Russia, Vietnam, India, most of Africa,” said Doug Oberhelman, Caterpillar chief executive. “In 2010, the entire world is wide open, the developing world is growing twice as fast as the developed world and there’s still arguably several billion people out there that will modernise and progress.”
Caterpillar will pay $7.6bn for Bucyrus and assume $1bn of debt. Bucyrus shareholders will receive $92 per share, representing an implied premium of 32 per cent to Bucyrus’ share price as of Friday. Caterpillar said it would fund the acquisition with $5bn of debt, up to $2bn in equity, and cash.
Additional reporting by Javier Blas in London
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