A change in the industrial landscape

Earlier this week Caterpillar announced the deal to acquire Bucyrus international for approximately $8.6 Bil. The deal is showing the strategic intent of a new Caterpillar due to the following

  1. Single largest M&A deal from 1997 for the company
  2. Significant premium over the previous closing price of Bucyrus – 32%
  3. Timing well the need to tap into the global increases in demand and the rising prices of commodities in the last 12 months

The most interesting part of the story is this one slide that is taken from the investor presentation of Bucyrus International from October of this year. It shows the participants in the mining machinery industry across different product segments.

As one can see, with a single stroke of a pen, Caterpillar has suddenly become the world’s only end to end mining manufacturing equipment company. This has several implications for the industry in general.

  1. Caterpillar will become a dominant player in this market.
  2. It can potentially start to bundle up equipment to mining companies and start to impact competition
  3. Customers in the short run, will see better value realization / pricing breaks from CAT
  4. In the long run, CAT should be able to drive up prices and even shut out some competitors.
  5. This deal can start to force other competitors on the M&A path also for survival
  6. Eventually the rise in equipment prices may result in higher mining costs resulting in higher energy production costs and and potential increases for consumers
  7. Demand from emerging markets is rising at a rapid pace and combined with the increase in pricing should benefit CAT’s bottomline.

Few deals can reshape entire industries and this one promises to do just that. A global US company with unrivaled depth and breadth