Komatsu Ltd., the world’s second-largest maker of mining equipment, announced that it has agreed to purchase Joy Global Inc. for about $3.7 billion, including debt.
The announcement comes as mining equipment manufacturers prepare to showcase their latest and greatest products at MINExpo 2016 in Las Vegas, NV, Sept. 26-28, and is widely seen as a vote of confidence in the mining sector by Komatsu.
Japan-based Komatsu will spend $28.30 per share for the Milwaukee, WI-based Joy Global. It is the largest merger in the mining equipment sector since Carterpillar’s $7.4-billion acquisition of Bucyrus in 2010.
Like Caterpillar did through its merger with Bucyrus, Komatsu’s acquisition of Joy will allow it to expand further into underground mining. Komatsu currently produces only surface-mining equipment. Joy also manufactures larger dump trucks - key for cost-saving in surface mining.
The deal follows a flurry of consolidation in the sector over the past few years. Demand for mining equipment has tumbled sharply from the commodity cycle's peak five years ago as China and other key markets slowed.
"The mining market is near the bottom now. Now is the good time (to do the acquisition)," Komatsu chief executive officer Tetsuji Ohashi told Reuters. "We have solid enough financial soundness to withstand a large scale acquisition."
Komatsu generates annual revenue of more than $17 billion, with just under a quarter of it from mining equipment sales.
The company plans to finance the acquisition with funds on hand and bank loans. The deal is subject to approval of Joy shareholders and the necessary regulatory green light.
Joy is the largest independent maker of underground-mining equipment and has long been viewed as a potential target for Komatsu, which manufactures dump trucks and large excavators for companies such as Rio Tinto Group. Komatsu looked at Joy as recently as 2012 but rejected a deal after concluding there were few cost savings, Bloomberg reported.
Joy has posted a net loss in each of the last three quarters and its share price is down by more than half over the last five years.
The pullback contrasts with the mining-machinery industry’s boom during 2000-2010 on the back of surging commodity prices. Back then, miners complained of shortages and long lead times to secure equipment. Companies such as Joy were able to raise prices, benefiting from both increased demand and higher margins.
Adding Joy’s expertise in underground equipment is a logical step for Komatsu as new mines are increasingly likely to be developed deep below the surface, according to Sydney-based Fat Prophets resource analyst David Lennox. “The easy deposits have all generally been found,” he said.
The purchase of Joy also means the list of independent companies making mining equipment has shrunk to a just few companies, including Atlas Copco AB, Sandvik AB and Boart Longyear Ltd.
The Joy deal is valued at about $3.6 billion once debt is included, according to data compiled by Bloomberg. The takeover is expected to close in mid-2017 after regulator and shareholder approvals, Komatsu said. Goldman Sachs Group Inc. advised Joy while Mitsubishi UFJ Morgan Stanley Securities Co. Ltd. advised Komatsu.
Komatsu plans to operate Joy as a separate subsidiary and will retain its brand names, the U.S. company said in a separate statement.