Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Caterpillar Unearths a Solid Purchase

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Caterpillar (NYSE: CAT  ) , the large Peoria-based manufacturer of construction and mining equipment, successfully rode out the global economic decline. Now it's signaling its belief that the recent commodities recovery is here to stay.

On Monday, the company announced that it will pay $7.6 billion -- $8.6 billion, including net debt -- for Bucyrus (Nasdaq: BUCY  ) , a maker of surface mining equipment. That translates to $92 for each of Bucyrus's shares, a 32% premium above Friday's $69.62 close. Bucyrus's products are used in the production of such minerals as coal, copper, iron ore, and oil from tar sands. To pay for the deal, Caterpillar will likely employ cash, debt, and as much as $2 billion in equity.

While commodities demand has yet to bounce back in traditional markets, minerals-rich developing nations such as Brazil, China, and India appear to be taking up much of the slack. As a result -- and following staff cuts involving 37,000 full-time and contract employees when many of its markets softened -- Caterpillar was able to double its profit in the third quarter.

The newly announced deal -- which is expected to close in mid-2011 -- follows Bucyrus's $1.3 billion acquisition of Terex's (NYSE: TEX  ) mining-equipment division in February. That purchase gave Bucyrus a more robust product line than Milwaukee neighbor and close competitor Joy Global (Nasdaq: JOYG  ) , as Bucyrus attempted to become a one-stop shop for mining. Now it appears that Caterpillar will realize that vision.

In announcing the planned purchase, Caterpillar's still-new CEO Doug Oberhelman said: "For several years, mining customers have been asking us to expand our range of products and services to better serve their increasingly complex requirements. This announcement says to those customers, we heard you loud and clear." He also predicted that "this, and other recent acquisitions, will position Caterpillar for industry leadership and will be positive for our stockholders, customers, and employees."

The announcement accompanies other news from the mining industry: Australia's BHP Billiton (NYSE: BHP  ) , the world's biggest miner, is not surprisingly throwing in the towel on its $38.6 billion offer for PotashCorp (NYSE: POT  ) , amid Canadian opposition. BHP previously failed to complete a proposed purchase of Rio Tinto (NYSE: RIO  ) and an iron ore joint venture with the same company. Perhaps BHP has simply grown too large to gain approval for a sizable deal.

Caterpillar's need to gain regulatory approvals, along with that of Bucyrus shareholders, appears less problematic, especially with blessings in hand from both boards. Furthermore, I'm convinced that the proposed deal appears to portend an excellent fit. And with Mr. Oberhelman alluding to Caterpillar potentially earning $10 per share by 2012, it's difficult to see how the company also wouldn't fit nicely into Foolish portfolios.   

The Fool has established a bear put spread position on Caterpillar. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't have financial interest in any of the companies named above. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1370202, ~/Articles/ArticleHandler.aspx, 10/27/2016 1:16:04 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,208.10 8.77 0.05%
S&P 500 2,138.28 -1.15 -0.05%
NASD 5,231.36 -18.91 -0.36%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 1:00 PM
BHP $34.90 Down -0.35 -0.99%
BHP Billiton CAPS Rating: ***
BUCY.DL $92.00 Down +0.00 +0.00%
Bucyrus Internatio… CAPS Rating: *****
CAT $83.23 Down -0.90 -1.07%
Caterpillar CAPS Rating: ***
JOY $27.88 Up +0.03 +0.11%
Joy Global CAPS Rating: ****
POT $16.67 Down -0.11 -0.66%
PotashCorp CAPS Rating: ****
RIO $34.50 Up +0.29 +0.85%
Rio Tinto CAPS Rating: ***
TEX $23.45 Down -0.16 -0.68%
Terex CAPS Rating: *****