Caterpillar Inc. will acquire South Milwaukee-based Bucyrus International Inc. for about $8.6 billion. The transaction is expected to close in mid-2011.
Under the terms of the transaction, which has been approved by the boards of directors of both companies, Bucyrus shareholders will receive $92 per share, $7.6 billion in aggregate consisting of all cash. The transaction represents an implied premium of 32 percent to Bucyrus’ share price as of Nov. 12. Caterpillar will fund the acquisition through a combination of cash from the balance sheet, debt and up to $2 billion in equity.
When the deal is finalized, Caterpillar will locate its global mining headquarters in the former Midwest Airlines building in Oak Creek. Bucyrus is in the process of redeveloping the building, and expects it to be ready for occupancy by the time the transaction closes.
Caterpillar’s Chairman and CEO Doug Oberhelman said his company had been asked by its customers in the mining sector to offer a greater range of products in the industry, and Bucyrus quickly became the right acquisition.
“This is a fabulous opportunity for the employees and customers of both companies,” he said. “We think this is a great time to invest in mining. Modernization will continue in the developing countries – everywhere you go (around the world) modernization is continuing as the middle class strives to progress. With interest rates as low as they are today, and us being in the early stages of a global (economic) recovery, it’s a great time to make an investment.”
The two companies expect to see roughly $400 million in synergies by 2015, both Oberhelman and Tim Sullivan, Bucyrus’ president and CEO said. Those synergies will not be made through drastic employment reductions – the companies see significant growth opportunity because of the deal.
“The benefits we get from opening (distribution of Bucyrus products) to our Caterpillar dealers worldwide is a big driver,” Oberhelman said. “And there’s a sizeable play with components. There’s also a big opportunity to grow aftermarket service with our dealer networks.
“This was not a deal put together on cost synergies. This was a growth deal, one in 10 to 15 years we think will make a difference.”
Sullivan has agreed to stay with Bucyrus through the closing and a transitional period, he said.
“This company has quadrupled over the last few years. It’s become a great value,” Sullivan said. “One of the last things I want to do is to make sure it transfers properly. I’m committed to doing that.”
Citing Sullivan’s more than 30 years in the mining business, Oberhelman said he may try to keep Sullivan involved in Caterpillar’s mining division.
“Tim knows every customer in this business, and that’s an asset we will utilize,” Oberhelman said. “We think he’ll continue to help us down the road.”
