(Updated to reflect closing stock prices and to add analyst comments.)
SOUTH MILWAUKEE, Wisc. (
) -- Investors applauded
Monday after the company said its deal to acquire the mining-equipment segment of
would boost its revenue by more than 50% and double the size of the market it's capable of selling machines to.
Bucyrus shares surged by as much as 11.7% Monday, touching a new 52-week high at $56.82, before easing back. The stock ended the regular session at $55.84, up 9.8%, or $5. Volume reached 7 million shares, more than double the daily average turnover of 2.7 million. Terex shares also shot higher, closing the day at $20.94, up $1.73, or 9%.
Bucyrus CEO Tim Sullivan told
Monday that the deal positions his company as a kind of one-stop shop for the huge diversified mining concerns, such as
. "We can provide them with everything they need," Sullivan said. "This product portfolio becomes, without exception, the largest portfolio of mining machinery in the world. Already since this morning some of our largest customers have called and congratulated us."
On a separate Monday morning conference call to discuss
, Sullivan and his top managers added texture to a deal that investors already viewed favorably.
During the call, executives said that, on a pro forma basis, revenue from the new business lines would boost the company's overall top line to about $3.9 billion from the $2.6 billion projected for 2009, all but guaranteeing an earnings lift in the first year that Bucyrus owns the former Terex unit.
Bucyrus executives didn't provide their own earnings forecasts, but one stock analyst covering the heavy-equipment industry, Paul Bodnar of Longbow Research, said Bucyrus could add 35 cents to 40 cents per share to its bottom line in 2010, if the acquisition closes by the end of the first quarter. Those figures exclude deal costs. Analysts have a consensus target for Bucyrus' 2010 EPS of $3.25.
Looking deeper in the future, Bodnar said the acquisition could add $1.75 to $2.00 per share to Bucyrus's earnings by 2013, taking into account debt servicing and synergies.
Executives said that the purchase price -- $1.3 billion in cash -- equals about 8.6 times the $150 million that the Terex unit is expected have in 2009 earnings before interest, taxes, depreciation and amortization. Including the synergies Bucyrus expects to glean from the combination, as well as some tax advantages, the purchase price falls to below five times EBITDA, according to the Bucyrus bosses on the call. "We got down a good deal at the right time," Sullivan said. "All the stars aligned properly for us on this one."
Though the deal announced Sunday night is all-cash, with Bucyrus using a line of credit from JPMorgan Chase, Terex has an option to take $300 million of the purchase price in Bucyrus stock, which Sullivan characterized as a "vote of confidence" from the Westport, Conn.-based Terex. Terex will exit the mining-equipment business completely with the sale -- something it's been looking to do for some time.
If there's one potential negative from the deal for Bucyrus, it's the possibility of shareholder dilution should Terex choose to take that equity chunk. Sullivan, however, downplayed the impact of any stock issuance, saying the dilution to current holders would be "minimal."
The purchase continues Bucyrus's effort to diversify away from the coal-mining industry, widely regarded as a slow-growth market compared with iron ore or copper. Sullivan said that, with the Terex deal, the company will derive less than 58% of its business from coal mining, down from 65%.
"This really broadens our base into geographies and commodities that we haven't been able to sell into," Sullivan said.
Bucyrus, which outbid other parties for the Terex unit, has primarily built equipment powered by electricity, which thus require fairly sophisticated infrastructure at the mine sites. Terex's machines, however -- which include mobile drills, hydraulic excavators and off-road trucks -- use diesel, and thus can access more remote mines in places like Indonesia or Africa.
Already a more international player than its crosstown rival
, Bucyrus will gain access to markets in Western Australia, one of the globe's premier iron-ore patches. Sullivan also noted gold mines in northern Africa and new ore seams in Indonesia as markets where Bucyrus previously had a small presence or no presence at all, but will once the Terex purchase closes, expected during the first quarter of 2010.
Perhaps the most lucrative piece of equipment that Bucyrus will take from the deal, analysts say, are Terex's off-road diesel mining trucks, which compete primarily with
As for Terex, the company had long been looking to raise capital to reinvest in its businesses, widely believed to require a rejuvenated distribution and service network. Longbow's Bodnar said the mining unit was, simply, the easiest of its businesses to sell.
Terex also makes equipment used in construction, as well as cranes, aerial lifts, and road-building machines such as scrapers and road graders. The recession and the real-estate collapse have especially hurt the company's construction segments.
Under the terms of the deal, Terex has a little more than 300 days to deploy the capital it receives from the sale of its mining unit.
-- Written by Scott Eden in New York
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