UPDATE: LeTourneau Deal Gives Joy Global Exposure To Oil, Gas Industry
May 16 2011 - 12:25PM
Dow Jones News
Joy Global Inc. (JOYG) intends to purchase mining equipment
manufacturer LeTourneau Technologies Inc. from Rowan Cos. (RDC) for
$1.1 billion, as Joy Global moves to counter Caterpillar Inc.'s
(CAT) acquisition of rival Bucyrus International Inc. (BUCY)
Joy Global's acquisition of LeTourneau will give the Milwaukee
company exposure to oil and gas drilling equipment and will expand
Joy's line of high-horsepower wheel loaders. LeTourneau specializes
in giant electric-drive wheel loaders for surface mines.
"I believe LeTourneau is a high-quality business at a good
value," said Chief Executive Mike Sutherlin during a conference
call Monday. "We can add substantial value to LeTourneau's drilling
business. We also know the LeTourneau mining business very
well."
Joy Global already distributes LeTourneau mining equipment in
some markets. Sutherlin said he expects the business to be
accretive to Joy Global's earnings in the first year after the deal
is completed and predicted that Joy Global will achieve $40 million
in cost reduction synergies by 2013. LeTourneau reported revenue of
$815 million in 2010 and pre-tax income of $105 million.
Caterpillar's $7.6 billion deal for Bucyrus International late
last year put pressure on Joy Global to make a move as the only
remaining pure-play company in the surface- and underground-mining
equipment market. Caterpillar, the world's largest maker of
construction equipment by sales, is widely seen as having a size
advantage over Joy Global once its purchase of Bucyrus is completed
later this year.
By acquiring LeTourneau, Joy Global will be able to pivot into
the oil and gas industry as well as fortify its mining equipment
business, particularly for mines sites in remote locations that
rely on the big wheel loaders because they lack electricity to
power electric mining shovels.
"This fits very strategically with our business," Sutherlin
said. "It's going to give us some great opportunities. We see
ourselves as a business that understands the resource extraction
business very well."
Orders for mining equipment has been improved in recent quarters
as higher prices for commodities such as copper and coal provide an
incentive for mine operators to revive expansion projects and plans
for new mine sites shelved in late 2008 when demand and prices
collapsed.
Rowan planned to sell or spin off its LeTourneau manufacturing
operations when market conditions became favorable. Rowan's
first-quarter earnings fell 50% due in part to delayed shipments at
LeTourneau and one-time costs in its offshore drilling
business.
Joy Global's stock was recently trading up 1.7% at $89. Rowan
was up 2% at $38.80.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
--Lauren Pollock contributed to this report.
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