UPDATE: Deal Makes Bucyrus More Competitive With Joy Global

Bucyrus International Corp. (BUCY) plans to leapfrog crosstown rival Joy Global Inc. (JOYG) as the world's largest mining-equipment maker, just as the sector prepares to dig itself from a year-long downturn.

Its acquisition of Terex Corp.'s (TEX) mining business Monday raises its presence in higher value commodities and emerging markets.

The $1.3 billion cash purchase will give Bucyrus product lines and production capabilities in hydraulic mining excavators, electric-drive earth mover trucks and self-propelled blasthole drills.

The mining business has been one of Terex's best-performing segments in recent years, with net sales of $1 billion a year. Terex's strongest products include its diesel-powered mining shovels and its third place share of the earth-mover market behind Caterpillar Inc. (CAT) and Japan's Komatsu.

Bucyrus' equipment lines include electric-powered shovels and giant drag lines for surface mines and longwall mining machinery for underground mines.

"This is a very transformational deal for this company," said Chief Executive Tim Sullivan during a conference call Monday with Wall Street analysts. "This creates the premier equipment supplier in the world."

The deal is expected to increase Bucyrus' annual revenue by about 46%, to $3.8 billion, roughly equal with Joy Global's $3.59 billion from its recently concluded fiscal year. The Terex deal will put Bucyrus in some different equipment markets from Joy Global. The two Milwaukee, Wisc., companies traditionally have competed toe-to-toe in longwall machinery and dragline equipment.

Bucyrus will receive a boost in emerging geographic markets, such as China, where Terex already has a joint venture with a Chinese mining equipment company. Bucyrus will increase the percentage of sales it derives from high-margin mined commodities as well.

About 5% of Bucyrus's annual revenue will now come from gold mining, compared with 3% currently. Conversely, Bucyrus' revenue from lower-margin coal mining will drop to 54% from 65%. "Terex has been able to achieve market share in several minerals where our machinery is frankly just too big," Sullivan said.

The purchase is expected to double the size of the equipment market Bucyrus competes in, to $30 billion a year from $15 billion.

Bucyrus has seen its order backlog and new order volume contract dramatically this year as its customers pulled back on purchases of new equipment after prices for copper, iron ore, oil and other mined commodities collapsed in late 2008. Bucyrus expects the Terex deal to close by the end of the first quarter and to be accretive to earnings in the first year. Bucyrus said the deal will provide $100 million in annual synergies. Charles Brady, director of capital goods research for BMO Capital Markets, said he expects the actual synergy figure to be greater.

"When all is said and done, that $100 million is probably going to be too low," he said. "There's not any meaningful overlap between Bucyrus and what they're getting from the Terex mining business."

Bucyrus intends to keep its corporate headquarters in South Milwaukee and anticipates adding 400 to 500 employees as a result of the acquisition.

Connecticut-based Terex said the sale was prompted by the company's increasing inability to provide the working capital and ongoing investment to effectively compete in a consolidating mining equipment industry.

Terex plans to use the proceeds from the sales to acquire machinery companies in niche markets. Terex's remaining product lines include aerial work platforms, tower cranes and compact construction equipment.

"We're going to take this company to places it hasn't been before," Chairman and Chief Executive Ron DeFeo said.

Terex's stock ended Monday's regular session up 9%, or $1.73, at $20.94 a share. Bucyrus ended up 9.8%, or $5, at $55.84 a share.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

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