Caterpillar Takes Over Bucyrus for $8.6 Billion

Nov. 16, 2010
Synergies drive plan to consolidate product line in expanding mining sector

Caterpillar Inc. and Bucyrus International Inc. have agreed that Caterpillar will acquire Milwaukee-based Bucyrus in a deal valued at $8.6 billion, including $7.6 billion in cash and debt. The takeover gives Caterpillar a boost in its offerings to the mining equipment sector, including shovels, draglines, and drills.

Bucyrus shareholders have not yet approved the transaction, and it must gain regulatory approvals before being finalized. Bucyrus president and CEO Tim Sullivan called the merger agreement “an outstanding and financially compelling transaction for our shareholders.”

Bucyrus designs and manufactures surface mining and underground mining equipment for coal, copper, iron ore, oil sands, and other minerals. It also produces original equipment parts for other manufacturers. The company’s headquarters in Wisconsin will become Caterpillar’s new mining business headquarters, and the Bucyrus brands will remain. Caterpillar Mining Group president Steve Wunning will have “executive office accountability” for Bucyrus.

Caterpillar already has a stake in the mining sector but explains that the purchase is motivated by its “estimate of more than $400 million in annual synergies beginning in 2015 derived from the combined financial strength and complementary product offerings of the combined mining equipment businesses.” These include enhancing the offerings of its global equipment sales and support network; remanufacturing; supplying engines and components for Bucyrus equipment; scale and cost efficiencies stemming from purchasing and engineering consolidation; and deploying Caterpillar Production System “best practices” through the Bucyrus operations.

“Even today at mine sites around the world, our customers are using Bucyrus shovels to load Caterpillar mining trucks,” Wunning stated. “This combination, as well as the significant expansion in products and facility capacity already announced, gives us the opportunity to expand the range of surface and underground mining products and solutions offered to customers by Caterpillar and its dealer network.”

Raw materials and mining industries are enjoying in a long-term growth cycle, which has enhanced the value of mining equipment manufacturers, suppliers, and distributors. Earlier this year Bucyrus completed a $1.3-billion takeover of the mining equipment division of rival Terex Corp., and among its many capital projects this year Caterpillar has included a $700-million program to develop mining trucks and shovels.

“For several years, mining customers have been asking us to expand our range of products and services to better serve their increasingly complex requirements,” stated Caterpillar chairman and CEO Doug Oberhelman. “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. Our strategy calls for disciplined investment in attractive industries that value our product and service delivery model.”

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