For nearly a century, equipment manufactured by Joy Global's
Joy Global will acquire equipment maker LeTourneau Technologies from contract driller Rowan Cos.
Joy Global has earned Foolish recognition as a proven forecaster of major trends unfolding throughout the global commodities markets. Because of this, Fools will take notice when the company refers to "a new rig build cycle for both offshore and land rigs." Orders for 22 new rigs have expanded the industry's order book already during 2011, while options for 28 additional rigs are suggestive of compelling backlog expansion. As of March 31, Rowan Cos. already reported a total manufacturing backlog of $487.4 million, of which 61% corresponded to LeTourneau's drilling equipment unit.
The remaining 39% of that backlog brings us to the second major feather that is set to land in Joy Global's cap. In addition to drill rigs and related equipment offerings, LeTourneau also manufacturers some of the mining industry's largest and most efficient front-end loaders, including the only wheel-based models large enough to fill the industry's 400-ton haul trucks. In addition, LeTourneau's diesel-electric drive systems make the loaders a compelling choice for miners keen to control rising energy costs. LeTourneau's mining equipment unit will be subsumed into Joy's P&H division.
Instead of locking horns with Caterpillar in a futile campaign to outmuscle the new market-share champion, Joy Global has made what I consider a brilliant move to build a unique suite of product offerings and occupy its own distinct niche among the makers of extractive equipment. The deal restores Rowan to a pure-play contract driller that could pique the acquisitive interest of a suitor like SeaDrill
Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns no shares in the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy plays with full-sized earth movers in the world's largest sandbox.