Komatsu buying Joy Global in for US$3.7B

Mining equipment manufacturing and fix company Joy Global said that Komatsu, a mining and construction company based in Japan, will be acquiring it in a deal valued at $3.7 billion.

Komatsu said on Thursday that it would acquire 100 percent of the Milwaukee, Wisconsin-based company for $28.30 per share, about a 20 premium to Wednesday’s closing price.

As part of the merger, Komatsu plans to operate Joy Global as a separate subsidiary of the company and retain the Joy Global brand names. “We are also seeing structural changes in the United States and China coal industry”. That values Joy’s equity at just under $2.9 billion. The offer was made by Komatsu America Corp. -the acquirer’s United States subsidiary-and has already factored in the target company’s debt obligations. Shares are up 84.8% year-to-date as of the close of trading on Tuesday.

The deal will be Komatsu’s biggest-ever acquisition and signals its confidence that the recent upturn in commodity prices is set to continue. Both companies are devoted to an “integrated direct sales and service model”.

The deal is subject to approval of Joy shareholders and regulatory scrutiny. Komatsu had total assets of $25 billion and total equity of $14 billion as of March 31, 2016 with a credit rating of A from S&P and A2 from Moody’s.

Komatsu said the deal was consistent with its growth strategy for its mining division, especially as the Japanese firm’s main plant for that sort of equipment is based in Peoria, Illinois, which makes it an easy fit with Joy Global.