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Updated from 7:40 a.m. with further details of the deal
NEW YORK (TheStreet) -- Caterpillar (CAT) said Monday it will acquire Bucyrus International (BUCY) in a deal worth about $8.6 billion including debt.

Caterpillar said it is pursuing the deal as part of its plan to increase its clout in the mining equipment industry. The move is expected to result in annual synergies of more than $400 million starting in 2015.

Under the deal, Bucyrus shareholders will receive $92 a share, or $7.6 billionin cash. This represents about a 32% premium to Bucyrus' closing share price of $69.62 last Friday. Shares of Bucyrus have surged by 29.1% to $89.90 in premarket trading Monday.

Caterpillar shares were down 1.2% to $80.05. The company said it plans to fund the acquisition through cash, debt and up to $2 billion in equity.

J.P. Morgan

is serving as Caterpillar's financial advisor in the deal while

Deutsche Bank



are serving as Bucyrus' financial advisors.

The transaction is expected to close in mid-2011, after which Caterpillar plans to have its mining headquarters in South Milwaukee, Wis., where Bucyrus' headquarters is currently located.

-- Written by Andrea Tse in New York.

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