Caterpillar set to buy Bucyrus (November 22, 2010)

Caterpillar Inc. (CAT-N), the world’s largest maker of construction and mining equipment, is offering to buy Bucyrus International (BUCY-Q) in a deal worth US$8.6 billion including debt.

The deal, which has been approved by the boards of both companies, will see Bucyrus shareholders receiving US$92 per share in cash, or US$7.6 billion. The transaction represents a 32% premium to Bucyrus’ Nov. 12 closing price of US$69.62.

“This is an outstanding and financially compelling transaction for our shareholders,” said Bucyrus president and CEO Tim Sullivan in a news release.

Caterpillar will fund the acquisition through a combination of cash, debt, and up to US$2 million in equity. As part of the deal, it will assume US$1 billion of Bucyrus’ debt.

The transaction is expected to close in mid-2011, and requires the approval of regulators and Bucyrus’ shareholders.

According to Caterpillar’s chairman and CEO Doug Oberhelman, cutbacks made during the 2008 recession helped financially position the company to make such an offer.

“Our performance through the global economic turmoil of 2008-09 allowed us to emerge with a strong balance sheet and the ability to make investments in companies like Bucyrus,” said Oberhelman in a news release.

Caterpillar says the acquisition once completed will “represent significant growth and opportunity” for Caterpillar and Cat dealers, such as a highly complementary Bucyrus product line and a global distribution network, among other benefits.

Bucyrus, a leading equipment maker for surface and underground mining, is headquartered in South Milwaukee, Wisc., where Caterpillar plans to move its business headquarters, and retain the Bucyrus brand for the main Bucyrus products.

“Even today at mine sites around the world, our customers are using Bucyrus shovels to load Caterpillar mining trucks,” said Caterpillar Group president Steve Wunning, adding that the takeover would allow the company to expand the range of products and solutions offered to its customers.

Caterpillar adds that the driving force behind the bid for Bucyrus was the “estimate of more than US$400 million in annual synergies starting in 2015 derived from the combined financial strength and complementary product offerings of the combined mining equipment businesses.”

On Nov. 15, the day the takeover news was released, Bucyrus shares jumped US$20.18 to a closing high of US$89.80 on 29.7 million shares traded. Caterpillar shares crept up US78¢ to US$81.82 on 15.7 million shares traded.