The Rising Influence of Rising Affluence

[DewDiligence]

JOYG Acquires LeTourneau for $1.1B

http://www.ft.com/cms/s/0/58880c58-7fdb-11e0-b018-00144feabdc0.html

›By Hal Weitzman in Chicago
May 17 2011 00:23

Joy Global, one of the biggest makers of mining equipment, has struck a $1.1bn deal to buy LeTourneau Technologies from Rowan Companies in a further sign of consolidation in the sector.

The acquisition comes six months after Caterpillar, the biggest maker of earthmoving equipment by revenue, paid $7.6bn for Bucyrus International, a US maker of mining machinery which is Wisconsin-based Joy Global’s main rival [#msg-56696672].

By strengthening Caterpillar’s position as the top mining equipment maker, that deal put pressure on Joy Global to do a merger or acquisition in order to become a bigger player in a fast-growing global market that is estimated to be worth some $40bn annually.

The two acquisitions demonstrate bullishness among heavy equipment makers about the long-term strength of commodities and extractive industries, particularly in emerging markets [duh].

Capital spending is forecast to increase by at least 15 per cent this year from 2010, according to Jefferies & Company, the US investment bank, in response to demand from China and other emerging countries.

Like the Caterpillar deal, Joy Global’s acquisition creates another powerful North American player in a global sector seeing increasingly fierce competition from emerging market rivals.

The purchase of Texas-based LeTourneau would enable Michael Sutherlin, Joy Global president and chief executive, to diversify his customer base by expanding the company’s presence in the mining-equipment sector and entering the oil and gas drilling market.

“The drilling products business moves us into another area of resource extraction that has similar fundamentals and value drivers as surface and underground mining,” Mr Sutherlin said on Monday.

Entering the drill-making business is something of a homecoming for Mr Sutherlin, who ran the drilling equipment unit of Varco International in the 1990s.

Joy Global expects the deal to generate some $40m in cost savings, but Mr Sutherlin said the deal was primarily aimed at opening up new opportunities, such as tapping LeTourneau’s presence in emerging economies and growing demand for large equipment such as wheel loaders.

“We’re looking at markets that we don’t currently serve very well,” the Joy Global chief said, citing examples such as the iron-ore sector in Western Australia, coal mining in Indonesia and emerging mining countries such as Mongolia and Mozambique.

LeTourneau had revenues of $815m last year, with $556m from its drilling products business and $259m in mining revenue.

Mr Sutherlin said he did not expect any other company to try to break up the agreed takeover. “It’s locked and loaded,” he said.

The company said it would fund the acquisition with cash and borrowing, most likely via a bank loan but also possibly through a public offering.

Bank of America Merrill Lynch advised Joy Global, while Barclays Capital was Rowan’s adviser.‹