Caterpillar Inc. (CAT), the world’s largest producer of construction and mining equipment, entered into a deal with Xuzhou Construction Machinery Group (“XCMG”) to expand its excavator facility in Xuzhou, China. The terms of the deal are subject to Chinese regulatory clearances and are yet to be disclosed.
 
Under the agreement, Caterpillar will acquire XCMG’s 15.87% stake in Caterpillar Xuzhou Limited (“CXL”). CXL, a joint venture between Caterpillar and XCMG, will become a wholly-owned company of Caterpillar upon the completion of the deal.
 
The company expects the new plant in Xuzhou, scheduled to be completed by 2014, to bring a mammoth 400% increase in its excavator manufacturing capacity in China.
 
This initiative of Caterpillar is a continuation of its effort to meet the increasing demand for excavators around the world. The company currently focuses on key growth markets of Asia. In particular, the company plans to continue investing in China in anticipation of heavy spending across the country for a wide range of infrastructure improvements.
 
China is witnessing a rebound from the global downturn. This would work in favor of Caterpillar as China is one of its major markets.
 
In the recent past, Caterpillar had announced its plans to build a new excavator production facility in the United States, after a study of its existing excavator manufacturing capacity in the U.S., Japan and China. The Chinese deal fits the bill.
 
We believe the planned expansion of excavator production in China is an essential part of Caterpillar’s long-term strategy of supporting the global demand for excavators.
 
Illinois-based Caterpillar’s closing share price on June 29, 2010 was $60.85.
 
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