During six months of negotiations with Komatsu Ltd., representatives from Joy Global Inc. were able to increase the company’s purchase price by more than $1 billion, including an additional 30 cents per share in the days before the deal was announced.
The two companies announced in July that Komatsu America, a subsidiary of the Japanese firm, would acquire the Milwaukee-based mining equipment maker for $28.30 per share.
Joy Global also retained the right to respond to and negotiate other unsolicited acquisition proposals before shareholders vote on the deal. Joy’s board of directors felt if there was another potential buyer, announcing the deal “would be the best way to elicit any such offer,” according to a filing made last week with the Securities and Exchange Commission.
Mircea Dobre, Robert W. Baird & Co. senior research analyst covering Joy Global, suggested after the deal was announced that there could be other bidders for the company.
According to the filing, Joy can spend up to $5 million to promote employee retention, incentivize the closing of the deal and provide for a reasonable transition period. Komatsu also has agreed to provide all employees not represented by a union with their base salary and comparable incentives and benefits for a year after the deal closes.
Increasing offers
The filing shows Komatsu first expressed an interest in acquiring Joy during the week of Jan. 25, a time when Joy’s shares were trading below $9 per share.
Komatsu’s initial offer, made Feb. 23, was to acquire Joy for $17 per share. Joy’s board of directors responded in early March by indicating it was open to a deal, but that the proposal “significantly undervalued Joy Global and was not a basis on which Joy Global would enter into discussions.”
Komatsu responded March 30 with an offer to acquire Joy for $23 per share. Joy’s board again said the proposal was insufficient, but agreed to hold management meetings between the companies.
The two sides met on May 1 and May 2 in Chicago and Komatsu sent a revised offer of $24.50 per share on May 17.
As the discussions were progressing, Joy Global’s management also began a review of the company’s business and determined things were trending toward a slow recovery that would hit a low point in 2017 and slowly recover through 2021.
Mining equipment companies have been challenged in recent years as falling demand for coal in the U.S. and China has led to reduced demand for their products. BizTimes Milwaukee detailed the struggles of Joy and Peoria, Illinois-based Caterpillar Inc. in a recent cover story. Joy posted a $1.2 billion loss last year and has had to reduce its workforce and close operations to survive.
Despite the company’s struggles, Joy’s share price had increased to more than $22 per share by early June. The board countered Komatsu’s $24.50 per share offer on June 6 with a proposal for a $28 per share transaction price. The board also considered whether other companies might be interested in acquiring Joy and determined Komatsu was the best fit. The potential for a leak to derail the Komatsu deal also weighed against the board pursuing any other deals, according to the filing.
Komatsu agreed to the $28 per share price on June 12 and the two sides began working on due diligence efforts and developing a definitive agreement.
Finalizing negotiations
Among the items included in the deal were efforts to address employee retention, maintenance of equity awards consistent with past practice and guarantees for payment of performance awards. Komatsu had originally contended those items didn’t need to be included and should be discussed after an agreement was announced.
As negotiations progressed, Joy’s stock price continued to climb higher. With the price approaching $24 per share, the board had chief executive officer Ted Doheny ask Komatsu CEO Tetsuji Ohashi on July 19 about the possibility of increasing the purchase price for the deal.
Ohashi said Komatsu wouldn’t go any higher, but the board had Doheny try again on July 20. Doheny and the board suggested $28.50, arguing that the $28 per share price represented less than a 20 percent premium, which could complicate the deal.
Ohashi responded with an offer of $28.30 per share, which achieve the 20 percent premium. Both boards approved the revised offer that day.
Komatsu’s board wanted the deal announced after the close of business in Japan on July 21, which meant the acquisition was announced in the early morning in Milwaukee.
