2nd UPDATE: LeTourneau Deal Exposes Joy Global To Oil, Gas
16 Maio 2011 - 2:02PM
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."
Rowan, meanwhile, plans to use the proceeds from the all-cash
deal to expand its offshore drilling business. 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. Completion
of the deal is expected by the end of the summer.
Caterpillar's $7.6 billion acquisition of 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 mine sites in remote locations that rely
on the 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 have 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 had planned to divest itself of its
equipment-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. Rowan said LeTourneau's performance has been
hampered by having a customer base of drilling companies that also
compete with Rowan's drilling business.
Rowan expects the sale to provide after-tax proceeds of $875
million. The Houston-based company intends to use the money to
either expand its jack-up-rig fleet or move into the
ultra-deep-water drilling market.
"This transaction is consistent with the strategy we've been
communicating to you for the last two years," Rowan CEO Matt Ralls
said during a conference call with analysts. Ralls noted that Rowan
had been considering a spinoff of LeTourneau as a separate company
before Joy Global approached the company about buying the
business.
"It was not an easy decision to bypass that potential [spinoff],
but given the liquidity provided to Rowan for its expansion, we
were able to look at an outright sale," he said. "The fit with Joy
Global is excellent."
Joy Global's stock was recently trading up 1.7% at 89.17. Rowan
was up 2.3% at $38.93 a share.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
--Lauren Pollock contributed to this article.
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