Construction and mining equipment manufacturer Terex Corporation (TEX) has agreed to sell its mining business to Bucyrus International Inc. (BUCY) for $1.3 billion in cash.
As a part of this transaction, Terex will divest hydraulic mining excavators, electric drive mining trucks, track and rotary blasthole drills, and the highwall miner as well as related parts and aftermarket service businesses, including the company-owned distribution locations. The transaction is expected to close in the first quarter of 2010.
Terex is evolving from a construction and mining equipment company to a machinery and industrial products business. It now wants to focus on products and services where it can maintain and build superior customer propositions with high returns on capital. This transaction will accelerate the company’s transformation.
Management pointed out that mining is a highly capital intensive business and it would take years for Terex to build the infrastructure to service and support new equipment sales, whereas Bucyrus already has a significant presence in this business.
The deal will provide Terex with good financial flexibility, as its cash balance will be substantially equal to its outstanding indebtedness. The company said that the approximately $1 billion of after-tax proceeds will allow it to invest in its current businesses and to add new, well-positioned niche manufacturers with strong market presence to its portfolio.
Terex has been witnessing declining unit volumes across the board since the second half of 2008, primarily due to the deterioration of the North American and European economies. It had reported a wider-than-expected net loss for the third quarter. Terex posted a net loss of 77 cents per share, compared to the Zacks Consensus Estimate of a net loss of 33 cents.
With no substantial recovery expected in any of the company’s end markets in the near term, we believe it is impossible for the company to post profits in the next couple of quarters.
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