Caterpillar Inc.
(
CAT
) has received a go-ahead from the Ministry of Commerce of the
People's Republic of China ("MOFCOM") for the acquisition of
China-based underground coal mining equipment manufacturer ERA
Mining Machinery Limited.
ERA Mining Machinery primarily operates through its wholly owned
subsidiary Zhengzhou Siwei Mechanical & Electrical Equipment
Manufacturing Co., Ltd., commonly known as Siwei. Siwei possesses a
manufacturing base of 600,000 square meters in Zhengzhou, Henan
province, where it manufactures and sells roof support equipment to
underground mining customers in China.
The offer values ERA up to HKD $6,885 million ($886 million) on
a fully diluted basis. It consists of two options: an all-cash
alternative to acquire the shares for HKD 88 cents per share,
and/or a loan note alternative which will entitle the loan note
holder to receive a minimum of HKD 75 cents and up to HKD $1.15 per
loan note upon redemption.
Caterpillar had announced its intention to acquire ERA in
November last year. The acquisition is in tune with its strategy of
strengthening its presence in the Chinese mining industry. This is
yet another development in a series of investments carried out by
Caterpillar to tap the growing Chinese market.
Caterpillar continues to make significant investments in China
and announced a wide range of new facilities. Expansion of an
R&D center in Wuxi, China is in the pipeline.
Caterpillar recently announced the expansion of its
manufacturing facility in Xuzhou, China, which would augment
hydraulic excavator by a substantial 80%. Furthermore, it is adding
another product line and is also expanding its wholly owned,
Chinese construction equipment company, Shandong Engineering
Machinery ("SEM").
This Siwei acquisition, if consummated, would build on
Caterpillar's recent purchase of Bucyrus International Inc., a
South Milwaukee-based manufacturer of surface and underground
mining equipment. The Bucyrus acquisition has positioned
Caterpillar as the leading global mining original equipment
manufacturer. The combined product portfolio dwarfs
Joy Global Inc.
(
JOY
), the only other manufacturer of surface and underground mining
equipment in the US.
Joy Global is also eyeing the Chinese mining equipment market.
In July 2011 the company acquired a 51.6% stake in International
Mining Machinery Holdings Ltd., a leading designer and manufacturer
of underground longwall coal mining equipment in China.
Caterpillar, like Joy Global, is riding the wave of heightened
construction and mining activity in developing markets, triggered
by the demand for coal, copper and iron ore. The company expects
demand to continue expanding over the next decade.
Caterpillar's expansion plans of opening new facilities and
furthering existing operations, particularly in the emerging
markets, will boost its long-term potential. However, in addition
to the European debt crisis, signs of a slowdown in China have
triggered concerns. China has slashed its 2012 growth target to an
eight-year low of 7.5%. A slowing Chinese economy will have a
negative effect on infrastructure and construction spending with an
impact on Caterpillar's sales in the near term.
Shares of Caterpillar presently retain a Zacks #1 Rank
(short-term Strong Buy recommendation). We reiterate our long-term
Neutral rating.
Peoria, Illinois-based Caterpillar Inc. is the manufacturer of
construction and mining equipment, diesel and natural gas engines,
and industrial gas turbines. The company is one of the few leading
U.S. companies in an industry that competes globally from a
principally domestic manufacturing base.
Caterpillar operates two divisions - M&PS and Financial
Products. It competes with the likes of
CNH Global NV
(
CNH
),
Komatsu Ltd.
(
KMTUY
) and
Volvo AB
(
VOLVY
).
CATERPILLAR INC (
CAT
): Free Stock Analysis Report
CNH GLOBAL NV (
CNH
): Free Stock Analysis Report
JOY GLOBAL INC (
JOY
): Free Stock Analysis Report
VOLVO AB ADR B (
VOLVY
): Free Stock Analysis Report
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