Joy Global Inc. is in talks to buy International Mining Machinery Holdings Ltd., a Chinese maker of coal-mining equipment, according to two people with knowledge of the matter.
A deal may be announced as soon as this week, said the people, who declined to be identified because the discussions are private. International Mining, controlled by private-equity firm Jordan Co., has a market value of HK$8.5 billion ($1.1 billion), based on its July 11 closing stock price. The shares were suspended from trading July 12 and yesterday.
The acquisition may be Joy’s biggest, topping its $1.1 billion purchase of LeTourneau Technologies Inc. from Rowan Cos. in June, data compiled by Bloomberg show. Joy may have to pay a premium of as much as 30 percent for International Mining, according to a note from Piper Jaffray Cos. published today, implying a price of up to $1.42 billion.
“IMM’s products are purchased by major Chinese coal mining companies, which is a testimony to its good products, and this is also why Joy Global may be interested,” said Tan E Wuen, a Hong Kong-based analyst with Osk Asia Holdings BHD.
International Mining makes shearers, which cut coal from the coal face, and underground excavating and tunneling machines. China is the largest coal producer. Thermal coal at the Australian port of Newcastle, the benchmark price for Asia, has climbed 26 percent to $121.45 a metric ton in the past year, according to McCloskey data.
Jordan, which oversees about $6 billion and owns 41 percent of International Mining, plans to sell its stake as part of the proposed deal, one of the people said. Under Hong Kong law, that would trigger a mandatory offer for the rest of the company. Jordan invested in International Mining in 2006, according to its website.
Sandy McKenzie, a spokeswoman for Milwaukee-based mining-equipment manufacturer Joy, declined to comment. International Mining Chief Executive Officer Allen Chan didn’t respond to two telephone calls seeking comment.
Joy rose $1.09, or 1.2 percent, to $94.87 as of 4 p.m. New York time yesterday in Nasdaq Stock Market trading after climbing as much as 3.7 percent. International Mining, which closed at HK$6.55 on July 11 in Hong Kong, has advanced 87 percent in the past year.
International Mining is forecast to boost profit by 51 percent to 529 million yuan ($81 million) this year, according to the average of 10 analyst estimates compiled by Bloomberg. It trades at 13.3 times projected 2011 earnings, compared with 16.6 times for Joy, data compiled by Bloomberg show.
Target Price Raised
International Mining’s valuation has been depressed by speculation that Jordan would sell its stake, said Tan. A lock-up on Jordan’s shares expired in mid-February, BOC International Holdings Ltd. analyst Lawrence Lau wrote in a note to clients last month.
In the June 7 note, Lau raised his target price for International Mining to HK$9.14 from HK$7.30, citing speculation that Jordan had appointed an investment bank to find a buyer for its stake in the company. He cited Caterpillar Inc.’s $8.61 billion takeover of Buycrus International Inc., valuing the target at 20 times estimated full-year earnings, as “an important reference for any potential buyer of IMM.”
A price-to-earnings multiple of 20 would value International Mining at $1.62 billion, based on the average analyst’s 2011 earnings estimate.
Joy’s takeover of LeTourneau added drilling rigs with retractable legs to a portfolio that includes excavators, shovels and mining equipment such as conveyors and roof supports. Chief Executive Officer Michael Sutherlin said on a June 2 conference call that the company would “aggressively” pursue growth in underground mining equipment.
An International Mining purchase would mark the second billion-dollar foreign acquisition of a Chinese company this month, after Nestle SA said July 11 it would spend S$2.07 billion ($1.7 billion) for a majority stake in Hsu Fu Chi International Ltd., a Chinese candy maker.
Based on International Mining’s market value, a bid for the company would be the largest in the construction and mining machinery industry since Caterpillar’s offer for Buycrus, data compiled by Bloomberg show.