Caterpillar set to buy Bucyrus (November 15, 2010)

Caterpillar Inc. (CAT-N), the world’s largest maker of construction and mining equipment, has agreed to buy Bucyrus International (BUCY-Q) in a deal worth US$8.6 billion (including debt) or US$7.6 billion in aggregate. 

The deal, which has been approved by the boards of both companies, will see Bucyrus shareholders receiving US$92 per share in cash, representing a 32% premium to its 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’ net debt.

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

According to Caterpillar’s chairman and CEO Doug Oberhelman, the scale backs made during the 2008 recession, helped position the company to make such an investment.

“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 keep the Bucyrus brand for the main Bucyrus products.

Some of the products Bucyrus offers include electric rope shovels, hydraulic shovels, drills, underground mining equipment and trucks.

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

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

Caterpillar says the combined company will be able to take advantage of the economic growth in developing countries like India and China for commodities.

On Nov. 15, the day the takeover news was released, Bucyrus shares jumped US$20.18 to close at US$89.80 – a new 52-week high – on 29.7 million shares traded. Caterpillar shares crept up US78¢ to US$81.82 on 15.7 million shares traded.