2nd UPDATE: Caterpillar To Buy Mining-Equipment Co Bucyrus For $7.6 Billion

Caterpillar Inc. (CAT) announced plans Monday to acquire mining equipment maker Bucyrus International Inc. (BUCY) for about $7.6 billion, providing greater exposure to surging global markets for commodities at a time when the outlook for its construction machinery remains cloudy in the U.S. and other developed economies.

The company, already the world's largest manufacturer of bulldozers, excavators and wheel loaders, has longed eyed mining as a sector to expand its equipment footprint. Caterpillar dominates the market for huge dump trucks used at mine sites and Caterpillar announced plans earlier this year to begin offering its own mining shovels.

By buying Bucyrus, Caterpillar avoids the cost and uncertainty of launching a new product line from scratch. Bucyrus provides Caterpillar with a broad and well-respected product portfolio of mining shovels, drag lines, drills and underground coal mining equipment. The Milwaukee-based company recently overtook cross-town rival Joy Global Inc. (JOYG) as the world's largest mining equipment maker when it bought the mining equipment business of Terex Corp. (TEX) earlier this year.

"For several years, mining customers have been asking us to expand our range of products and services to better serve their increasingly complex requirements," said Caterpillar Chairman and Chief Executive Doug Oberhelman said in a written statement Monday.

The purchase of Bucyrus is the largest deal in Caterpillar's history and the first acquisition since Oberhelman took over the leadership of the company in July. The proposed deal is scheduled close in the middle of 2011.

Caterpillar said in a slide presentation ahead of a call with analysts that mining was "a strategic imperative".

The Bucyrus deal would be accretive in its first year, absent a 50-cent per share special charge. It would add to operating profit and cash flow in its first full year, and synergies would start to kick in from 2013, reaching their full run rate in 2015.

In 2009, Bucyrus reported net income of $312 million, or $4.12 per share, from sales of $2.65 billion. The company had an order book of $2.53 billion at the end of the third quarter, with bookings recovering over the past year after a slump when the commodity bubble burst in mid-2008. Analysts expect Bucyrus to earn $3.56 per share this year on sales of $3.56 billion.

Caterpillar is offering $92 for each Bucyrus share, a 32% premium to Friday's closing price, with debt lifting the enterprise value of the deal to $8.6 billion. The purchase price translates into a deal multiple of about 11 times Bucyrus' anticipated 2011 earnings before taxes and interest expenses. Industrial companies in cyclical industries typically sell at multiples for less than that.

"It's definitely a very rich valuation," said Heiko Ihle, an analyst for Gabelli & Co.

The deal will be funded through a combination of cash, debt and up to $2 billion in new equity. Caterpillar said it will keep the mining-business headquarters in South Milwaukee, Wis, and it will maintain the brand.

Caterpillar's willingness to pay up for Bucyrus illustrates its confidence that markets for iron ore, copper, aluminum, coal and other mined commodities will continue to strengthen in the coming years from increased demand from developing countries, mainly China and India.

Fast-growing economies in Asia and South America have been Caterpillar's best-performing markets for construction machinery lately. Conversely, demand for machinery fell sharply in North America, Caterpillar's largest geographic market, following the collapse of the housing and commercial construction markets in 2008. Although North American sales have rebounded this year as its dealers rebuild their inventories, the continuing slump in the housing market and an anemic outlook for gross domestic product growth in the U.S. and Europe are likely to be headwinds for the Peoria, Ill., company in 2011.

Shares of Bucyrus were recently up 29.6% at $90.24. Caterpillar shares were 2.3% higher at $82.91

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

(Nathan Becker, Doug Cameron and James R. Hagerty contributed to this report.)

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