Japanese mining equipment maker Komatsu is acquiring US-based Joy Global for $2.9 billion. It is Komatsu’s biggest-ever acquisition and will roughly double the size of its manufacturing equipment business.
The deal, worth $3.7 when Joy’s debt is included, will give Komatsu access to Joy’s underground mining business. Joy has suffered from its significant exposure to North America’s struggling coal industry, which faces regulatory pressure and competition from cheap natural gas.
Acquiring Joy will help Komatsu expand into hard-rock mining for metals such as copper. At present Komatsu currently produces only surface mining equipment. Joy also manufactures larger dump trucks, which are key to cost savings in surface mining.
Komatsu will acquire 100% of the Milwaukee-based company for $28.30 per share, about a 20% premium to Joy’s closing price on Wednesday and an almost 50% premium to where the stock has traded in the last three months.
Joy Global is a worldwide mining machinery and services company founded in 1884. Through its leading brands - P&H, Joy and Montabert – Joy manufactures and services advanced original equipment and parts for underground and surface mining applications, as well as material handling systems and components for a variety of applications, products that complement existing Komatsu products.
The company’s integrated technology, services and solutions are a critical component of operations in a variety of commodity markets including energy, hard rock and industrial minerals.
Komatsu has engaged in the mining equipment business since its foundation in 1921. In the 1990s the company expanded by acquiring selected mining equipment manufacturing and distribution businesses operating in major mining regions.
Demand for mining equipment has tumbled sharply from the commodity cycle’s peak five years ago as China and other key markets slowed.
“The mining market is near the bottom now. Now is the good time (to do the acquisition),” Komatsu chief executive Tetsuji Ohashi said. “We have solid enough financial soundness to withstand a large scale acquisition.”
Komatsu generates annual revenue of more than $17 billion, with just under 25% of it from mining-equipment sales.
After the acquisition is complete, Joy Global will become a consolidated subsidiary of Komatsu. The acquisition is expected to close in or after April 2017.
Shares of Komatsu in Tokyo ended 2.3% higher at 2082 yen on Thursday, valuing the group at 1.97 trillion yen (US$18.4 billion). The deal was announced after the market closed.
Komatsu, which has forecast a fourth straight annual drop in demand for key products this year, said it expects the sector to grow in the long term.