Caterpillar Is Stretching Its Branches Into China Mining Machinery Market And Enterprise

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Caterpillar, the worlds biggest maker of earthmoving equipment, has strengthened its presence in the mining machinery market by striking an $886m deal to buy ERA Mining Machinery, a Chinese manufacturer of underground coal-mining equipment.

The proposed acquisition builds on Caterpillar $7.6bn purchase last year of Bucyrus International, another maker of mining machinery. That deal transformed the company into the worlds biggest supplier of large mining equipment.

Doug Oberhelman, Caterpillar chief executive, has identified the mining industry as a key area of expansion.

Buying ERA would enable Caterpillar to make further inroads into China where coal mine operators tend to prefer local brands over US equipment.

Caterpillar is in a race with rival Joy Global, a US mining-equipment maker, to take market share in Chinas mining industry. Joy Global announced plans in July to buy a 41 per cent stake in Chinas International Mining Machinery for $585m.

Steve Wunning, Caterpillar group president with responsibility for resource industries, said the ERA deal underscores Caterpillars long-term commitment to continue to invest in China in order to support our growing base of Chinese customers.

Mr Wunning said Caterpillar hoped both to expand in China through ERA and to use Caterpillars global presence to sell the companys products internationally.

The deal values ERA at up to HK$6.9bn ($886m), a one-third premium on the companys stock price before trading was halted in Hong Kong on Monday on expectations of the acquisition being announced. The deal is subject to approval by ERAs shareholders and Chinese regulators.

This is another indication that CAT is leveraging itself to what we think is a relatively long-dated international mining up-cycle, driven by relatively strong emerging market commodity demand, wrote analysts at Barclays Capital in a research note. While we would not be surprised if this announcement generates some investor concern given potential sentiment that mining may be somewhat late in its cycle, we believe that the mining end market is still in the middle innings of growth.

Citigroup Global Markets Asia advised Caterpillar on the deal, while Blackstone advised ERA.

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