--Joy Global to pay $585 million for 41% stake of International
Mining
--Plans tender offer for remaining 59% after purchase
finishes
--Deal would build Joy Global's presence in China market for
coal-mining machinery
--Selling shareholder is TJCC unit of private-equity firm Jordan
Co.
(Updates comments and quotes from CEO and more details of about
market conditions in China.)
By Bob Tita and Alison Tudor
Joy Global Inc. (JOYG) said its acquisition of China's
International Mining Machinery Holdings Ltd. (ICMHF, 1683.HK) will
give Joy Global access to smaller mine operators that typically
rely on equipment from Chinese manufacturers.
As a U.S.-based exporter of mining machinery to China, Joy
Global said its market is largely limited to large coal mines that
are able to afford premium-priced equipment. Smaller mines,
however, typically use lower-priced, less technically advanced
machinery supplied by domestic manufacturers, like International
Mining.
"The market for local equipment is large and growing rapidly,"
said Joy Global CEO Mike Sutherlin during a conference call
Thursday with analysts. "As we looked at the landscape,
[International Mining] has always been on our list. IMM is an
established market leader in the local market."
Joy Global intends to acquire 41% of International Mining for
$585 million and obtain the remaining shares of the company later
through a tender offer. TJCC Holdings Ltd., a unit of U.S.
private-equity firm the Jordan Co., has agreed to sell its 534.8
million shares to Joy Global for 8.50 Hong Kong dollars (US$1.09)
per share, about 30% above International Mining's stock price when
trading in Hong Kong was suspended earlier this week. International
Mining, which was founded by the Jordan Co. in 2006 and went public
in 2010, has a market capitalization of about HKD$8.5 billion.
Joy Global said it will make a tender offer for the remaining
59% of International Mining's shares at HKD8.50 per share following
the completion of its share purchase from TJCC. That would raise
Joy Global's cost for International Mining to ut $1.4 billion.
The tender offer would not commence until China's Anti-Monopoly
Bureau of the Ministry of Commerce signs off on the acquisition.
The Chinese government's reluctance in the past to approve the sale
of Chinese machinery manufacturers to foreign-based companies has
been a hurdle for U.S. companies interested in expanding in
China.
"Our understanding is that Chinese authorities were not open to
mining assets being owned by foreign companies--raising the
potential that Joy Global could end up being a long-term minority
holder in this business," said Stephen Volkmann, an analyst for
Jefferies & Co., in a note Thursday to investors.
The acquisition of International Mining would give
Milwaukee-based Joy Global a significantly larger presence in
China's coal-mining-machinery market, which accounted for less than
10% of Joy Global's sales last year. International Mining is one of
China's biggest manufacturers of long-wall mining shears for
extracting coal from underground mines. The company also makes
tunnelling machinery for excavating underground mines.
International Mining last year reported net income of 350
million yuan ($54.4 million) from sales of CNY1.94 billion. Demand
for coal in China has been surging as rapid development drives
expansion of coal-fired power-generating plants. For the first five
months of 2011, electricity production in China rose 12% compared
with the same period in 2010.
Joy Global's purchase of International Mining would be Joy
Global's second major acquisition in recent months. The company in
May purchased LeTourneau Technologies Inc. from Rowan Cos. (RDC)
for $1.1 billion. LeTourneau gave Joy Global exposure to markets
for 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.
Sutherlin has made no secret of plans to expand Joy Global's
footprint in the mining-machinery industry in response to
Caterpillar Inc.'s (CAT) recent acquisition of Joy Global's primary
competitor, Bucyrus International Inc.
"They're doing everything they can to avoid being scooped up by
a larger player," said Adam Fleck, an analyst with research firm
Morningstar Inc. "The strategic intent [of buying International
Mining] is positive for Joy Global."
Joy Global's stock was recently trading up at 0.62% at $95.46 a
share.
-By Bob Tita and Alison Tudor, Dow Jones Newswires;
312-750-4129;
robert.tita@dowjones.com