Mining equipment major Komatsu has announced its intent to take over United States-headquartered Joy Global for US$3.7 billion (A$4.91 billion). The move is part of Komatsu’s strategy to strengthen its mining equipment business.
Underground mining machinery specialist Joy Global’s board unanimously approved the takeover, which values Joy Global at US$28.30 per share. As part of the agreement, Joy Global will exist as a wholly-owned subsidiary of Komatsu but operate separately and retain its branding.
“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 president and chief executive officer Ted Doheny said.
PERFECT TIMING FOR ACQUISITION ACTIVITY
Most astute investors are aware that a prime time to make acquisitions is at the bottom of the market, or as it begins its upward climb. Companies with spare cashflow can easily snap up quality businesses at reduced prices.
Komatsu is one such company. Since it was established in 1921, Komatsu has been a part of the mining equipment industry. Komatsu’s mining business division currently brings in about 450 billion yen. At current exchange rates, this works out at approximately A$5.7 billion.
However, Komatsu’s mining business revenue is solely generated by the surface mining equipment sales. Because Joy Global caters to the underground mining sector, it is expected it will complement Komatsu’s surface mining product offering. Additionally, merging manufacturing capabilities and technologies will ensure both Komatsu and Joy Global’s customers will have access to a wider range of innovative heavy equipment, parts and attachments. Although the current market is subdued, Komatsu predicts demand will pick up for more efficient and safe heavy equipment for both surface and underground mining applications.
KOMATSU’S THREE-YEAR PLAN
In mid-April 2016, Komatsu revealed a three-year plan to strengthen its core mining division, which the company anticipates will assist in achieving sustainable long-term growth. This plan involves purchasing businesses that will enhance Komatsu’s capabilities and product offering.
The bid for Joy Global is part of this strategy. Under the takeover arrangement, Komatsu’s wholly-owned US-based subsidiary Komatsu America Corp will acquire 100 per cent of Joy Global. Subject to gaining regulatory approvals, it is anticipated the acquisition will be complete by mid-2017.