Caterpillar Expands Into Mining Sector With Bucyrus Acquisition

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Caterpillar Inc. (NYSE:CAT), the world’s leading manufacturer of construction equipment, yesterday (Monday) said it would pay $8.6 billion for Bucyrus International Inc. (NASDAQ:BUCY) – a maker of large-scale surface and underground mining machinery.

Caterpillar said in a statement the deal would allow the company to continue its expansion into mining and gain from the “robust long-term outlook for commodities.” The company is betting that emerging markets’ growth will “push demand” for coal and “everything that comes out of the ground.”

Caterpillar will pay $7.6 billion for Bucyrus and assume another $1 billion of its debt. The deal values Bucyrus at $92 a share, which is a 32% premium to the company’s Nov. 12 closing price of $69.92.

Caterpillar will fund the purchase using a combination of cash, debt and the sale of up to $2 billion in new shares.

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

Bucyrus’ products complement Caterpillar’s in that there is hardly any overlap in the types of mining equipment each company makes, allowing Caterpillar to significantly expand its offerings to customers.

The deal “fills an important portion in Caterpillar’s portfolio,” Mark Demos, a fund manager for Fifth Third Asset Management, told Bloomberg. “They do business with these customers and now they will be able to provide them a full line of mining products.”

The acquisition is Caterpillar’s biggest since 1980 and the largest in the construction and mining machinery industry in the past five years.

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