Caterpillar and Bucyrus International have announced that they have entered into an agreement under which Caterpillar will acquire Bucyrus International in a transaction valued at approximately $8.6bn (including net debt). The acquisition is based on Caterpillar’s key strategic imperative to expand its leadership in the mining equipment industry, and positions Caterpillar to capitalize 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 industrializing their economies.

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, $7.6bn in aggregate consisting of all cash. The transaction represents an implied premium of 32% to Bucyrus’ share price as of 12 November 2010. Caterpillar will fund the acquisition through a combination of cash from the balance sheet, debt and up to $2bn in equity. The transaction is expected to close in mid-2011. Caterpillar intends to locate its mining business headquarters in South Milwaukee, Wisconsin, where 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.”

“Our performance through the global economic turmoil of 2008-2009 allowed us to emerge with a strong balance sheet and the ability to make strategic investments in companies like Bucyrus. This, and other recent acquisitions, will position Caterpillar for industry leadership and will be positive for our stockholders, customers and employees,” 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 minimizing 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 capitalize 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.”

A driving motivation for the transaction is Caterpillar’s estimate of more than $400m in annual synergies beginning in 2015 derived from the combined financial strength and complementary product offerings of the combined mining equipment businesses.

Synergies driven by the acquisition include:

  • Market leading sales and support capabilities of Caterpillar dealers and a broad, one-stop shop for global mining customers
  • Caterpillar re-manufacturing 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
  • Deployment of manufacturing best practices through the Caterpillar production system