Largely unscathed by the sharp declines in demand for mining equipment that have been bleeding money from competitor Caterpillar over the last few years, Komatsu has decided now is the time to become a more meaningful player in the industry, announcing it will acquire Wisconsin-based surface and underground mining equipment manufacturer Joy Global.
Joy Global, founded in 1884 with manufacturing facilities across the world, manufactures the P&H, Joy and Montabert brands of equipment.
Subject to the approval of regulatory agencies and Joy Global shareholders, the deal would make Joy a wholly owned subsidiary of Komatsu America Corp. for $2.9 billion, roughly $28.30 per share. When including Joy’s indebtedness, the deal is valued at approximately $3.7 billion.
“We believe this is the right partnership to meet the evolving needs of our customers while furthering our ability to lead the mining industry with game-changing technologies and best-in-class products,”said Ted Doheny, president and Chief Executive Officer of Joy Global. “[The ] Board of Directors, in making its determination, considered the challenging market conditions the company believes are likely to persist. The mining industry continues to face cyclical headwinds from oversupplied commodities and reduced end user demand resulting in cash flow restrictions for most producers, creating an increasingly challenging environment. We are also seeing structural changes in the U.S. and China coal industry.”
The deal is expected to close by mid-2017.
Komatsu says though the mining industry is still limping along due to economic slowdowns in emerging countries and lower commodity prices, it expects a long-term rebound in the industry driven by “population growth and rapid urbanization around the world.”
The company also expects demand for larger equipment in surface mining to grow along with further development of underground mining.
To that end, the deal will introduce underground mining equipment, rope shovels, draglines, drills and super-sized loaders to Komatsu’s portfolio. The company notes that Joy’s rope shovels and loaders “pair well with the super large electric dump truck Komatsu manufactures.”
Dantotsu equipment and services will continued to be offered by Komatsu following the acquisition and Komatsu says it will likely bolster Dantotsu sales thanks to the influx of new underground mining customers.
Joy Global will operate as a separate subsidiary of Komatsu in order to retain the company’s corporate culture and ‘the strengths of Joy Global, its brand and the ‘direct sales/services’ scheme,” according to the Komatsu press release.
“We expect many Joy Global employees to benefit from exciting career opportunities as part of an even larger, more diversified company,” Doheny said.