Tim Sullivan, CEO of Bucyrus International, clearly believes in the return of boom times for mining. His latest move has been to secure the trucks, hydraulic excavators and other ancillary equipment Bucyrus’ surface mining line lacks. The company has signed a definitive agreement to acquire the mining equipment business of Terex Corp for $1.3 billion in cash. The transaction will create a very comprehensive supplier of mining equipment. The Bucyrus product portfolio now comprises walking draglines, electric rope shovels, hydraulic excavators, haul trucks, a full line of drills (surface and underground), highwall miners, underground longwall, room and pillar and transport machinery, and belt systems for all mining applications. Bucyrus says its “unmatched suite of surface and underground mining equipment will be paired with its superior parts, consumable products and after-market support throughout the world.”
“We are extremely excited about acquiring Terex Mining and we believe that this is a unique opportunity to build an even stronger company,” Sullivan said. “Customers will reap benefits from this transaction as Bucyrus will be able to offer a broad, complementary product line that is driven by technology, quality, and first class service. Through our extended product offering, we will continue to design and produce worldclass machines and provide the best after-market support throughout the life of the equipment. We will expand our geographic footprint and diversify our portfolio of products across a broader range of commodities. Like Bucyrus, the Terex mining assets have a proud history powered by hard-working, loyal employees who are passionate about mining.”
The Terex mining equipment business produces the world’s largest hydraulic excavators (the former O&K products), rugged haul trucks, advanced drilling machines, and highwall mining systems. It has 38 facilities around the world with approximately 2,150 employees. As a result of the transaction, Bucyrus will double its addressable market from roughly $15 billion to over $30 billion and create a team of approximately 10,000 people in nearly 100 locations around the world.
Under the terms of the agreement, Bucyrus will acquire those Terex subsidiaries and assets used to design, manufacture, and sell hydraulic excavators, surface mining trucks, drills (other than auger drills), highwall miners, and related components, parts, and after-sales service, commonly known as O&K, Unit Rig, Reedrill, Superior Highwall, Halco, and Hypac. The acquisition is expected to close during the first quarter of 2010.
Bucyrus estimates “there are over $100 million in annual run-rate operating synergies, achievable by 2012. A substantial portion of the synergies will come from the integration of the company’s global manufacturing facilities and leveraging manufacturing centres of excellence as well as engineering and product development resources. Additional cost savings are expected to come through combining management functions and reducing purchasing expenses, similar to Bucyrus’ successful integration of DBT following its acquisition in May 2007.”
Terex may be considered to be ‘throwing in the towel.’ Ronald M. DeFeo, Terex Chairman and CEO, clearly does not have the mining passion of Bucyrus’ Sullivan – passion that was never more in evidence than his chairmanship of the 2008 MINExpo in Las Vegas. “Mining is a highly capital intensive business. It would take us years to build the infrastructure to service and support new equipment sales in many of the key mining markets around the world where Bucyrus already has significant presence,” DeFeo said. “The journey to make this a great business will accelerate under the leadership of Bucyrus, which has a historically strong presence in surface mining with its rope shovel and dragline products.
“This transaction accelerates the transformation of Terex as we move from a construction and mining equipment company to a machinery and industrial products business,” DeFeo said. “Going forward, we will focus on products and services where we can maintain and build superior customer propositions with high returns on capital for our owners. The current environment plus this transaction provide an excellent opportunity to create value. We plan to execute the changes needed to make this happen.”
He emphasised “The sale of Mining to Bucyrus is good for customers, team members and shareholders. It is a classic proposition that strengthens the mining business for its customers and team members. For Terex, the attractive cash offer provides us excellent financial flexibility, as our cash balance will substantially equal our outstanding indebtedness.”
Terex may request to receive $300 million of the purchase price in the form of Bucyrus shares (based on Bucyrus’ current trading price).
