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