Finning Agrees to Acquire Part of Caterpillar Distribution Unit

Finning International Inc., the world’s largest dealer of Caterpillar Inc. equipment, agreed to buy part of a distribution unit from the U.S. manufacturer for about $465 million.

The business that Finning plans to acquire operates in South America, Canada, and the U.K. and was previously owned by Bucyrus International Inc., Vancouver-based Finning said in a statement today. The deal will be funded mainly through debt and is expected to add to Finning’s 2012 earnings, it said.

Caterpillar, the world’s largest maker of construction and mining equipment, is selling the assets as part of its integration of Bucyrus. Caterpillar bought Bucyrus for $8.6 billion in July to expand its portfolio of mining equipment as emerging economies use more commodities such as copper and coal.

Finning said in a slide presentation that the business it’s buying is forecast to have sales of about $700 million for this year, up from about $600 million projected for 2011.

The sale price was a “little bit below where expectations were,” said Larry De Maria, a New York-based analyst for William Blair & Co. who has an “outperform” rating on Caterpillar.

The margins for the distribution business appear to be on the lower side of expectations, he said. Finning forecasts a profit margin before interest and tax of about 8 percent within two to three years, according to the presentation.

Shifting Distribution

Caterpillar, based in Peoria, Illinois, is retaining Bucyrus’ more valuable mining-equipment manufacturing business, De Maria said.

“The idea is ultimately to drive more revenue from the dealers” by shifting the distribution and support services to them, De Maria said in an interview.

Caterpillar will provide an update on the sale of the Bucyrus distribution business when it releases its fourth-quarter earnings report on Jan. 26, Bridget M. Young, a Caterpillar spokeswoman, said in an e-mail today. She declined to comment further.

Caterpillar rose 1.3 percent to $104.26 in New York. Finning climbed 7 percent to C$26.10 in Toronto.

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