Caterpillar has announced plans to acquire Bucyrus International for $7.7 billion.
Through the acquisition of Bucyrus, Caterpillar has sought to lessen its exposure to launching a new product line in unfamiliar market.
It looked to acquire Bucyrus due to the fact that there was little product overlap.
Already the world’s largest heavy mining machinery company, Caterpillar announced earlier this year that it was moving into the shovel space, an area in which Bucyrus owns a large market share.
However, all the planned shovels by Caterpillar were to be hydraulic.
This acquisition will provide Caterpillar with a portfolio of products including electric mining shovels, drag lines, drills and underground mining equipment such as continuous miners.
This move follows Bucyrus’ takeover of fellow mining machinery company Terex in early 2010.
Caterpillar is offering the mining machinery company US$92 per share, a premium of 32% on Friday’s closing price.
The overall deal comes in at a multiple of eleven that of Bucyrus’ forecast 2011 EBIT.