Caterpillar to acquire Bucyrus

The Bucyrus acquisition of Terex's mining assets earlier this year was the largest deal in the mining equipment sector in many years. But on November 15, this was eclipsed by the announcement by Caterpillar that it in turn intended to acquire Bucyrus.

This raises several questions about the future development of certain product lines, for example, will the CAT hydraulic shovel programme even be needed with the former O&K assets on board; where will the former Unit Rig truck line fit with the current CAT range, especially for the larger AC drive models; will this allow CAT to pursue its previous intention to develop underground drilling rigs; and will the combination of the Lovat TBM expertise/assets with the Bucyrus hard rock cutting programme lead to product development in that area?

The details are as follows. Caterpillar and Bucyrus have entered into an agreement under which Caterpillar will acquire Bucyrus in a transaction valued at approximately US$8.6 billion, including net debt. The statement read: "The acquisition is based on Caterpillar’s key strategic imperative to expand its leadership in the mining equipment industry, and positions Caterpillar to capitalise on the robust long-term outlook for commodities driven by the trend of rapid growth in emerging markets which are improving infrastructure, rapidly developing urban areas and industrialising their economies.

Caterpillar intends to locate its mining business headquarters in South Milwaukee, Wisconsin, where the Bucyrus headquarters is currently located, and maintain the Bucyrus brand for the principal Bucyrus legacy products.

“For several years, mining customers have been asking us to expand our range of products and services to better serve their increasingly complex requirements,” said 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," Oberhelman said.

Tim Sullivan, Bucyrus president and CEO, said, “This is an outstanding and financially compelling transaction for our shareholders. More fundamentally, it is a testament to the tremendous value our talented team of employees has created over the past several years and to the strength of our brand in the global mining machinery marketplace. I am confident that we have found an excellent partner in Caterpillar. Caterpillar is a first-rate global company and it shares our commitment to providing innovative products and exceptional service to customers, creating a collaborative and safe work environment for employees and minimising the impact on the environment.

We are very pleased that Caterpillar has committed to locate its mining business headquarters in Milwaukee and we are confident that the combined global platform will be extremely well positioned to capitalise on the substantial growth opportunities in this market in the years ahead.”

The closing of the transaction is subject to regulatory approvals, customary closing conditions and approval by Bucyrus stockholders. At that time, Caterpillar group president Steve Wunning will have executive office accountability for Bucyrus, along with his current responsibilities for the company’s mining business. “Even today at mine sites around the world, our customers are using Bucyrus shovels to load Caterpillar mining trucks,” Wunning said. “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.”

Synergies driven by the acquisition that were mentioned include market leading sales and support capabilities of Caterpillar dealers and a broad, one-stop shop for global mining customers; Caterpillar remanufacturing products and services for Bucyrus equipment; Caterpillar engines and components to enhance performance and lower owning and operating costs for Bucyrus equipment; additional scale and cost efficiencies in areas such as purchasing and engineering; and deployment of manufacturing best practices through the Caterpillar Production System.