Joy Seals the Deal with More Stake - Analyst Blog


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Last week, Joy Global Inc. ( JOY ) completed the purchase of about 41.1% of the outstanding common stock of International Mining Machinery Holdings Limited (IMM). Joy Global's stake in IMM with the latest acquisition aggregates to 51.6% of the shares outstanding.

International Mining Machinery Holdings Limited is a leading designer and manufacturer of underground longwall coal mining equipment in China. It has strong domestic market positions in roadheaders and longwall shearing machines.

The transaction was initially announced in July 2011 whereby Joy Global entered into an agreement with TJCC Holdings Limited (TJCC) to purchase 534.8 million shares of IMM for a price of HKD 8.50 per share, representing 41.1% of the shares outstanding. In December 2011, Joy Global received nod from the Anti-monopoly Bureau of the Ministry of Commerce of the People's Republic of China to carry out the transaction.

Previously in July 2011, Joy Global Inc. had purchased approximately 136.5 million shares of IMM in the open market at a price of HKD 8.00 per share.

Per Rule 26.1 of the Hong Kong Takeovers Code, Joy Global will now have to make an offer for the remaining 59% of IMM shares.

Joy Global is positioned to relocate production capacity to low-cost regions like China, Poland and South Africa. The coal market in China is large and diverse and requires a multi-dimensional strategy.

Additionally, leadership in the Chinese market requires strong positions specific to each segment. IMM being an established market leader in the Chinese market with its premier products will help Joy Global in procuring leading positions in each of the major segments of the market.

Caterpillar Inc. ( CAT ), which competes with Joy Global, has also strengthened its position in the emerging market through Bucyrus acquisition. The Bucyrus acquisition will help Caterpillar in attaining a strong foothold in China and India, both of which are major mining markets. Furthermore, Caterpillar can leverage Bucyrus' successful aftermarket parts business and support services for its equipment.

Hence, we retain our Neutral recommendation on Joy Global. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Based in Milwaukee, Wisconsin, Joy Global Inc. is a mining equipment manufacturer and service provider.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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