Komatsu Buys Mining Equipment Leader in Multi-Billion-Dollar Deal

Joy Global Inc. has announced that its Board of Directors has unanimously approved a definitive merger agreement.

📅   Thu July 21, 2016 - National Edition
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Joy Global Inc. has announced that its Board of Directors has unanimously approved a definitive merger agreement under which Komatsu America Corp.
Joy Global Inc. has announced that its Board of Directors has unanimously approved a definitive merger agreement under which Komatsu America Corp.

Joy Global Inc. has announced that its Board of Directors has unanimously approved a definitive merger agreement under which Komatsu America Corp. - a subsidiary of Komatsu Ltd - will acquire Joy Global in a transaction valued at approximately $3.7 billion, including Joy Global's outstanding indebtedness.

Joy Global is a US mining company with a market cap of $2.31 Billion. Komatsu currently has a market cap around $19 Billion.

In 1967, Komatsu entered the American market and began to compete directly with Caterpillar. This acquisition is no different. Komatsu is buying Joy Global a mining company that is based in the United States. This move is similar to an acquisition Caterpillar made with purchasing Bucryus Erie in 2010. Cat acquired Bucyrus Erie for a premium of $8.8 Billion to expand its footprint in the mining industry.

Caterpillar's purchase 6 years ago positioned Caterpillar in the growing market segment of Mining. Currently, the mining industry has been slowing down which is one reason why Komatsu is taking a different angle for acquiring Joy Global. With Mining low Komatsu is able to purchase Joy Global at a more competitive price. It also doesn't hurt that the Yen is valued higher then the US Dollar at the current moment.

The move does not come just to follow what Cat did some 6 years ago, but rather to expand Komatsu's existing Mining Equipment. Komatsu currently produces surface-mining equipment while Joy Global has a product line for the Hard-Rock mining industry.

Under the terms of the agreement, Joy Global stockholders will receive $28.30 per share in cash for each outstanding share of common stock held, representing a 48% premium to the volume weighted average closing price of Joy Global's common stock for the 90 trading days and a 41% premium to the volume weighted average closing price of Joy Global's common stock for the 60 trading days prior to July 21, 2016.

Komatsu intends to operate Joy Global as a separate subsidiary of Komatsu and retain the strength of the Joy Global brand names. The companies will align the organization and operation for optimal customer support from Joy Global's headquarters in Milwaukee, Wisconsin. Komatsu and Joy Global's products and services are highly complementary and the combined organization will continue to focus on safety, productivity and life cycle cost improvement for customers. Komatsu plans to leverage both companies' leading technologies to pursue product and service innovation to enhance mine safety and productivity.

In addition, the companies employ complementary strategies and are committed to an integrated direct sales and service model. “This is a compelling transaction that delivers substantial and certain value to our stockholders as well as expanded options for our customers and employees going forward,” said Ted Doheny, President and Chief Executive Officer of Joy Global. “We believe this is the right partnership to meet the evolving needs of our customers while furthering our ability to lead the mining industry with game-changing technologies and best-in-class products. Joy Global's Board of Directors, in making its determination, considered the challenging market conditions the company believes are likely to persist. The mining industry continues to face cyclical headwinds from oversupplied commodities and reduced end user demand resulting in cash flow restrictions for most producers, creating an increasingly challenging environment. We are also seeing structural changes in the U.S. and China coal industry. “Our companies share similar cultures and values,” Doheny continued, “and we expect many Joy Global employees to benefit from exciting career opportunities as part of an even larger, more diversified company. On behalf of the Joy Global Board and management team, we thank our dedicated employees for their continued hard work and commitment to solving mining's toughest challenges.”

"The mining market is near the bottom now. Now is the good time (to do the acquisition)," Komatsu CEO Tetsuji Ohashi told reporters. "We have solid enough financial soundness to withstand a large scale acquisition."