Caterpillar Awakens to New Global Peer in Komatsu-Joy Tie-Up

  • ‘It’s going to make a more formidable competitor,’ FBR says
  • Joy is top independent maker of underground-mining equipment

Just as Caterpillar Inc. seemed to be emerging from the slump in commodities, the company finds itself facing a more formidable global competitor.

Komatsu Ltd., the second-biggest mining and construction equipment maker, agreed to buy Joy Global Inc. for $2.89 billion. While Caterpillar still has more than the combined sales of the two companies, the deal would give the Tokyo-based manufacturer the largest independent maker of underground-mining equipment and the heft to better compete with Caterpillar beyond Komatsu’s dump-truck and excavator businesses.

“In terms of the global mining landscape, I think it’s going to make a more
formidable competitor, someone who offers the whole product suite,” Lucas Pipes, an analyst for FBR Capital Markets & Co., said by phone. “They’ll face a more formidable player.”

With annual mining and construction sales of about $24 billion, Peoria, Illinois-based Caterpillar will still be the biggest in the industry, said Karen Ubelhart, an analyst at Bloomberg Intelligence in New York. Komatsu’s comparable revenue is about $14 billion, and Milwaukee-based Joy’s was $3 billion last year, she said.

‘Toe to Toe’

The acquisition comes amid signs of revival in commodities, which has have prompted the largest miners to begin to authorize investments in new projects after years of cuts in costs and output. The tie-up creates a competitive landscape with two matching global peers, Stephen Volkmann, a New York-based analyst at Jefferies LLC, said Thursday by phone.

“This deal allows Komatsu to compete toe-to-toe everywhere with Caterpillar,” Volkmann said. “There’s just two major players and each one basically does everything.”

Rachel Potts, a Caterpillar spokeswoman, declined to comment.

The Joy purchase also means the list of independent mining-equipment makers has shrunk to a just few companies, including Atlas Copco AB, Sandvik AB and Boart Longyear Ltd.

Komatsu looked at Joy as recently as 2012 but rejected a deal after concluding there were few cost savings. Komatsu plans to operate Joy as a separate subsidiary and will retain its brand names, the U.S. company said in a separate statement.

Commodities entered a bull market in June as supply constraints delivered gains in materials from zinc to soybeans. Major deals in mining or mining services indicate companies in the industry believe commodities are close to a rebound, according to Sydney-based Fat Prophets resource analyst David Lennox.

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