MercoPress. South Atlantic News Agency

Caterpillar bets on continued commodities boom, acquires competitor

The Cat-Bucyrus operation involves 8.6 billion US dollars

Placing a huge bet on the global commodities boom, the world's biggest heavy machinery maker, Caterpillar Inc., announced plans Monday to acquire mining equipment company Bucyrus International for 7.6 billion US dollars.

Caterpillar agreed to pay $92 per share for Bucyrus, which represents a 32% premium on the Wisconsin-based company's closing price on Friday. Caterpillar also agreed to assume $1 billion in Bucyrus debt, so the deal is valued at 8.6 billion USD.

Caterpillar is adding such products as giant electric-powered shovels made by South Milwaukee, Wisconsin based Bucyrus to its existing line-up of heavy trucks and excavators.

Caterpillar shares have risen 42% so far this year basically on better profits as customers return to invest in machinery and heavy equipment as the world moves away from recession. Bucyrus shares shot 30% at the Monday opening, while its main competitor Joy Global climbed 6%.

Joy Global Inc. could be the next mining-equipment manufacturer to be swallowed up, given the potentially smooth fit of its products with those of Hitachi Construction Machinery or Komatsu Ltd. of Japan.

Caterpillar had stated in the past it wanted to boost the range of mining equipment it offers to its customers. Bucyrus is a much smaller company than Caterpillar. The corporation is also a major player in the construction equipment market.

Caterpillar's Chairman and CEO Doug Oberhelman talked about the price of the Bucyrus acquisition during a conference call with analysts.

“In my mind, we paid a fair and full price. Lots of synergy opportunities. No product overlap to speak of. We shared some of the distribution business together already through Cat dealers and shovels. Two big names or three big names in the big equipment Bucyrus is in. We're pretty happy with where we are and the possibility of all of the synergies coming to bear. We have in our analysis exceeded our hurdle rate on this one by a comfortable range. So we feel pretty good about it.”