Caterpillar to Buy Bucyrus in $8.6 Billion Deal

Industrial equipment manufacturing giant Caterpillar (CAT) said it will acquire mining equipment company Bucyrus International (BUCY) in a deal valued at approximately $8.6 billion. With this acquisition, Caterpillar will get a bigger foothold in the mining equipment industry and capitalize on the "robust long-term outlook for commodities."

The company said the positive outlook for commodities is driven by the rapid growth in emerging markets, which are improving infrastructure, rapidly developing urban areas and industrializing their economies.

Under the terms of the transaction, Bucyrus shareholders will receive $92 per share, which is a 32% premium over Bucyrus' close Friday of $69.62. This amounts to $7.6 billion in cash. Caterpillar will assume Bucyrus' debt.

Caterpillar will fund the acquisition through a combination of cash from the balance sheet, debt and up to $2 billion in equity. The transaction is expected to close mid-2011.

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The acquisition "is a strong statement about our belief in the bright future of the mining industry," said Caterpillar Chairman and CEO Doug Oberhelman. "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."

Bucyrus President and CEO Tim Sullivan added, "This is an outstanding and financially compelling transaction for our shareholders. [...] 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.

Caterpillar estimates it can achieve $400 million in annual synergies beginning in 2015 derived from the combined financial strength and complementary product offerings.

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