Joy Global (JOY) To Be Acquired By Komatsu In A $2.9B Deal

Joy Global (NYSE:JOY) will be acquired by Japanese mining and construction equipment maker and seller Komatsu Ltd. (OTC:KMTUY) for nearly $2.9 billion. A definitive agreement for the acquisition was signed by the representatives of both the companies. The acquisition is expected to close in mid-2017, subject to approval by Joy Global’s shareholders and regulators of both countries.

Deal in Detail

Komatsu is on the lookout to expand operations globally and Joy Global with its footprint in more than 20 countries is just the right fit .

Komatsu will acquire a 100% share of Joy Global at a price of $ 28.30 per share with the total consideration coming to nearly $2.9 billion. The price offered for each share of Joy Global reflects a premium of 20.2% on yesterday’s closing price of $23.55.

Post acquisition, Joy Global will act as a consolidated subsidiary of Komatsu. Komatsu will fund this all-cash deal through its cash on hand and bank loans. The company does not plan to increase capital at this stage.

Conditions of Global Mining Equipment Makers

The global mining equipment space is highly competitive. The size of a company and its global reach play a vital role in warding off the challenges faced by the industry players.

Demand for mining equipment has declined from historical highs, reflecting economic slowdown in the emerging countries and low commodity prices. Joy Global tried to adjust to market conditions by selling off non-core assets and implementing cost-saving measures. In addition, the company was looking to shift its operations to low-cost regions to curtail costs.

However, as per Komatsu, the long-term prospect of the mining equipment business is much brighter than the current position given the population growth and rapid urbanization around the world.

So, the acquisition of Joy Global will place this Japanese equipment manufacturer on a much stronger footing to tap the benefits of a revival in mining equipment demand. Joy Global’s expertise in manufacturing large equipment for surface and underground mining will help Komatsu to cater to clients requiring large equipment for their mining projects.

Tougher Competition for Caterpillar?

Caterpillar Inc. (NYSE:CAT) is undoubtedly a major operator in the mining equipment space. Will this acquisition have the fire power to give a tougher competition to Caterpillar?

Komatsu will continue to offer its unrivaled Dantotsu products, services and solutions to its customers. In addition, the Joy Global acquisition will add underground mining and super large-sized loading equipment for surface mining to Komatsu’s existing portfolio. The combined company could thus pose a stiff challenge to Caterpillar going forward.

Future of Global Mining Equipment Space

Per a recent report from Allied Market Research, the global mining equipment market is expected to reach $156 billion by 2022. If the forecasts are proved to be true, this would be a major turnaround from the currently soft market conditions. Without a doubt, the mining equipment space will become fiercely competitive with big players gearing up to have a larger share of the demand pie.

A global equipment manufacturer Terex Corporation (NYSE:TEX) is also ramping up its products and improving its cost structure.

Zacks Rank

Joy Global currently has a Zacks Rank #3 (Buy).

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