Ja­pan's Ko­matsu to buy US Joy Global for $2.89b

The Pak Banker - - COMPANIES/BOSS -

Ko­matsu Ltd., the world's sec­ond- big­gest min­ing and con­struc­tion equip­ment maker, agreed to buy Joy Global Inc. for $ 2.89 bil­lion, in a deal sig­nal­ing the Ja­panese com­pany is op­ti­mistic that a re­cent re­bound in com­modi­ties prices will en­dure.

Tokyo- based Ko­matsu will pay $ 28.30 a share in cash for the Mil­wau­kee­based com­pany, us­ing funds on hand and loans, it said Thurs­day in a state­ment. The of­fer is 20 per­cent higher than Joy Global's clos­ing price on July 20 and marks the Ja­panese com­pany's big­gest- ever ac­qui­si­tion as it bol­sters its abil­ity to com­pete with big­ger ri­val Cater­pil­lar Inc.

Joy Global, as the world's largest in­de­pen­dent maker of un­der­ground min­ing equip­ment, has long been viewed as a po­ten­tial tar­get for Ko­matsu, maker of dump trunks and large- sized ex­ca­va­tors for com­pa­nies such as Rio Tinto Group. Ko­matsu looked at Joy Global as re­cently as 2012, but re­jected an ac­qui­si­tion after con­clud­ing there were few syn­er­gies at the time.

Ma­jor deals in the min­ing or min­ing ser­vices sec­tor are an in­di­ca­tor that com­pa­nies in the in­dus­try be­lieve com­modi­ties prices are close to be­gin­ning a re­vival, Syd­ney- based Fat Prophets re­source an­a­lyst David Len­nox said by phone.

"It's a pos­i­tive sig­nal," Len­nox said. "You'd ex­pect them to be mak­ing a sig­nif­i­cant ac­qui­si­tion when prices are bot­tom­ing or just close to it, and then likely to go up."

Com­modi­ties touched a bull mar­ket in June as sup­ply con­straints de­liv­ered gains in ma­te­ri­als from zinc to soy­beans, draw­ing a line un­der the big­gest price col­lapse in a gen­er­a­tion. After years of cut­ting loss- mak­ing out­put and trim­ming costs, the largest min­ers have be­gun to au­tho­rize in­vest­ments in new projects. The Bloomberg Com­mod­ity In­dex of re­turns on 22 raw ma­te­ri­als has ad­vanced 17 per­cent since it hit a 25- year low in Jan­uary.

Ko­matsu, which warned in April of a con­tin­ued de­te­ri­o­ra­tion in prof­its after an­nual in­come fell 11 per­cent for the year through March, said the pur­chase is in line with its strat­egy of strength­en­ing its "core min­ing equip­ment busi­ness in an ef­fort to achieve sus­tain­able growth," ac­cord­ing to its state­ment. The "cur­rent busi­ness en­vi­ron­ment for the min­ing in­dus­try is tough but there's a bright fu­ture in the mid- and long- term," Ko­matsu's chief ex­ec­u­tive of­fi­cer, Tet­suji Ohashi, told re­porters in Tokyo after the deal was an­nounced.

Ko­matsu plans to op­er­ate Joy Global as a sep­a­rate sub­sidiary and will re­tain the Joy Global brand names, the U. S. com­pany said in a sep­a­rate state­ment.

Adding Joy Global's ex­per­tise in un­der­ground equip­ment is a log­i­cal step as new min­ing op­er­a­tions are in­creas­ingly likely be be at depth, rather than at the sur­face, ac­cord­ing to Fat Prophets' Len­nox.

"The easy de­posits have all gen­er­ally been found, those are the de­posits close to the sur­face," he said. "In the fu­ture, the only way to find fur­ther large de­posits will be to ven­ture un­der­ground." Ko­matsu will ac­quire 100 per­cent own­er­ship of Joy Global through its Ko­matsu Amer­ica Corp. sub­sidiary.

The deal, which Joy Global val­ued at $ 3.7 bil­lion once debt is in­cluded, is ex­pected to close in mid2017 after reg­u­la­tor and share­holder ap­provals, Ko­matsu said.

Ko­matsu rose 2.3 per­cent to 2,081.5 yen in Tokyo be­fore the an­nounce­ment, bring­ing the Ja­panese man­u­fac­turer's gains to 4.5 per­cent this year. Joy Global has risen 87 per­cent since Jan. 1.

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