It looks like JLG (NYSE:JLG) will be getting a helping hand in its efforts to become the world's largest producer of telehandlers. The company announced an agreement with giant construction machinery manufacturer Caterpillar (NYSE:CAT) to produce Cat-branded telehandlers for sale both in and outside of the United States.

In a 20-year private label agreement, JLG will acquire various tools, technology, and intellectual property rights tied to the Cat telehandler business in exchange for $51.4 million in cash: $46.4 million paid at closing and the rest paid when the transition is complete (likely to be the third calendar quarter of 2006). JLG will continue to use Cat components in the Cat-branded telehandlers and will have access to the large worldwide network of Cat dealers.

For the current fiscal year (ending in June 2006), Cat will continue to produce its telehandlers as before while JLG will be investing in capital, design, and other preparations in anticipation of production. As a result, this year's earnings will be hurt by startup expenses, but in the following year, there should be more than $300 million in incremental sales, and management is estimating about 11% will be added to earnings.

JLG management estimates that this agreement will accelerate its development plans for the European market by about five years and should make the company the No. 1 player around the world in telehandler equipment (it is already No. 1 in aerial work platforms). What's more, it should reduce the company's dependence on major rental equipment customers such as United Rentals (NYSE:URI) and Hertz, which is owned by Ford (NYSE:F) but is in the process of going public.

Over the longer term, it is also possible that JLG will begin use Cat-supplied components in its own branded products. Although that could be a plus, especially given the company's recent experience with some component shortages, it will take time to develop because you can't just drop a new transmission system or engine into an existing design. What's more, management indicated that there is the possibility of selling additional products through the Cat dealership network over time.

In my mind, this is a classic example of investing for the future. Yes, JLG will see some near-term earnings and margin pain, but this investment strikes me as a small price to pay to accelerate the growth and expansion plan in conjunction with a well-regarded manufacturing giant. Of course, this is still a company with heavy cyclical exposure, so investors should be aware of the above-average risks that presents.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).