Caterpillar Inc. (CAT) is selling the distribution and support unit, formerly operated by Bucyrus International Inc. in South America, Western Canada and the United Kingdom, to Finning International Inc. of Vancouver, Canada, for $465 million. The sale of the unit is part of its integration of Bucyrus.
The distribution and support business generates revenues of around $600 million. The unit was included in Caterpillar’s purchase of Bucyrus Inc., a South Milwaukee-based manufacturer of surface and underground mining equipment, in July 2011. The $8.8 billion buyout was the biggest deal ever in Caterpillar’s history. It capitalized on the rising demand for coal and minerals triggered by growth in emerging nations. Earlier in December, Caterpillar sold a part of the Bucyrus distribution business to the Industrial Division of Sime Darby Berhad for $360 million.
The Caterpillar-Bucyrus combined portfolio broadens Caterpillar’s mining equipment product line, resulting in the most expansive product offering in the mining equipment industry. Furthermore, Caterpillar can leverage Bucyrus’ strong presence in the emerging markets, its successful aftermarket parts business and support services for its equipment. The Bucyrus acquisition positions Caterpillar as the leading global mining original equipment manufacturer. The combined product portfolio dwarfs Joy Global Inc. (JOY), the only other manufacturer of surface and underground mining equipment in the US.
Caterpillar is riding the wave of heightened construction and mining activity in the developing markets, answering to a demand for more coal, copper and iron ore. The company expects this demand to grow over the next decade. We thus expect Caterpillar to maintain its revenue and EPS growth trajectory. Further, given its strong balance sheet and cash position, we expect another dividend increase from the company.
Shares of Caterpillar presently retain a Zacks #1 Rank (short-term Strong Buy recommendation).
Peoria, Illinois-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company is one of the few leading U.S. companies in an industry that competes globally from a principally domestic manufacturing base. Caterpillar operates three divisions – Machines, Engines and Financial Products. Caterpillar competes with the likes of CNH Global NV (CNH), Komatsu Ltd. (KMTUY) and Volvo AB (VOLVY).
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