GE Prepares for Mining Deals Copying Energy M&A Strategy
General Electric Co. (GE) is preparing to buy more mining-equipment and services companies as it creates a new unit using the blueprint for doubling oil and gas revenue in four years.
The division should reach $5 billion in sales “within a few years,” said Lorenzo Simonelli, chief executive officer of GE Transportation, of which the business will be a part. GE’s current mining offerings generated about $2 billion last year, according to the Fairfield, Connecticut-based company.
GE CEO Jeffrey Immelt bulked up his energy portfolio with more than $11 billion in purchases in a six-month spree that ended in March 2011. Now he’s betting on rising demand for commodities from copper to coal even as miners such as BHP Billiton Ltd. (BHP), the world’s largest, delay spending on projects and China’s fast-growing economy shows signs of faltering.
“It is a good time to be looking at acquisitions in a value sense,” GE Mining CEO Geoff Knox said in a telephone interview. “We have to be targeted in buying into spaces that leverage what we already do. We want to use our current knowledge and add it to the product line we’re acquiring and make it smarter and more appealing.”
GE Mining will be based in Brisbane, Australia, home to 2012 acquisition Industrea Ltd. (IDL) The unit was unveiled today at the MINExpo industry exhibition in Las Vegas, where the participants include Caterpillar Inc. (CAT), the world’s biggest maker of mining and construction equipment.
Simonelli didn’t give a specific year by which he expects GE Mining to reach $5 billion in revenue. GE Transportation, the largest maker of locomotives, had $4.9 billion in sales in 2011.
Immelt’s creation of GE Mining comes as acquisitions in the industry accelerate, according to data compiled by Bloomberg. Buyers have announced at least $4.15 billion of takeovers of mining equipment and services companies in 2012, 52 percent more than a year earlier, the data show.
Mining and construction equipment makers around the globe with a market value of $1 billion or more trade at a median 12.6 times earnings, according to data compiled by Bloomberg. That compares with a 13.9 multiple for the MSCI All Country World Index, which tracks 2,245 companies in developed and emerging markets.
GE slid 0.8 percent to $22.36 at the close in New York as broader U.S. indexes declined. That pared the stock’s gain for the year to 25 percent, outpacing the 16 percent advance for the Standard & Poor’s 500 Index.
Joy Global Inc. (JOY), a mining-equipment manufacturer, looks “increasingly likely” to be a GE acquisition target, Larry De Maria, a New York-based analyst at William Blair & Co., said in a note to clients today. Milwaukee-based Joy Global rose 1.3 percent to $60.17.
Weir Group Plc (WEIR), another mining-industry supplier, also may be an attractive takeover candidate, according to a research note from Oriel Securities Ltd. The shares of Glasgow-based Weir fell 1.7 percent to 1,741 pence in London.
Telephone and e-mail messages left for comment with Sandy McKenzie, a Joy Global spokeswoman, and with Weir’s corporate headquarters weren’t immediately returned.
GE already offers products and services to mining companies, including water desalination systems and electrical turbines derived from jet engines, of which GE Aviation is the largest manufacturer. GE Mining will seek to expand its existing lines as well as make acquisitions, Simonelli said.
Two purchases on the same day in May signaled the emerging focus on mining. The deal to buy Industrea for about A$470 million ($466 million at the time) in cash added mining equipment, technology and services businesses in two pivotal markets: China, the largest iron-ore consumer, and Australia, No. 1 in exports of that mineral as well as coal.
GE also agreed to acquire a maker of underground-mining equipment, Glen Lyn, Virginia-based Fairchild International. It didn’t disclose terms.
Buying oil-and-gas services companies and equipment makers, including Dresser Inc. for $3 billion in October 2010 and the well-support division of John Wood Group Plc (WG/) four months later for $2.8 billion, helped GE build a unit that it says will have $15 billion of revenue this year.
“We’re looking at acquisitions in a way that’s measured, as well as integrating the ones we already have,” Simonelli said by telephone. “It’s a good comparison with GE Oil & Gas, which has become a large enterprise over the past few years with organic and inorganic plays. When you look at the mining space, we are following a similar playbook.”
The division’s profile received a boost in July when GE announced plans to split up the energy business, leaving three executives including oil and gas chief Dan Heintzelman to report directly to Immelt. The company said GE Energy CEO John Krenicki would retire after the reorganization.
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