28.10.2005

JLG acquires CAT telehandlers

JLG has announced today that it has signed definitive agreements to enter into a global alliance with Caterpillar Inc, to design and produce a full Cat branded telehandler product line exclusively for Caterpillar dealers.

As part of the deal JLG will acquire the key assets of CAT’s telehandler group. The purchase price for these assets, which includes tooling and intellectual property, is $51.4 million, with $46.4 million paid at closing and $5 million upon transition of Cat branded telehandler sales to JLG.

The transition period is estimated at around 12 months. In addition, JLG expects to invest an additional $30 million during the transition period (Fiscal Year 2006) for the development of the North American Caterpillar product line and for capacity improvements in both Belgium and Pennsylvania to accommodate the additional volume. Of this amount, approximately $14 million will be capitalized and $16 million will be expensed.

"We are very pleased to be able to form an alliance with Caterpillar and its global dealer network to build on our core strengths in the access market and provide a broad line of quality telehandlers to customers throughout the world," commented Bill Lasky, JLG's chairman, president, and chief executive officer.

"Consistent with our strategy of growth in our core products and diversification of our revenue streams through multiple channels to market, we are excited about this opportunity to further expand our global telehandler presence. We are equally excited to be working with Caterpillar, a manufacturer with an excellent reputation and a well-respected global dealer network. We are honored to have earned its endorsement of JLG's manufacturing capabilities to produce high quality telehandlers reflective of the Cat brand, and we look forward to the additional benefit of an expanded Cat relationship as a major component supplier to JLG."

"This alliance leverages our respective strengths, combining Caterpillar's global brand, distribution and component expertise with JLG's strong design capabilities in the telehandler and lift industry, to deliver a world-class telehandler product line to our dealers," said Ed Rapp, vice president of Caterpillar's Building Construction Products Division.

Under the terms of the 20-year strategic alliance agreement, JLG will provide, exclusively to Caterpillar dealers, a full line up of Cat branded telehandler products, these are likley to include the current CAT Bseries models along with Cat versions of existing JLG models, (but not Lull or Trak).

The Company will support the North American and Latin American markets from its McConnellsburg, Pennsylvania facility, and the markets in Europe and the rest of the world from its Maasmechelen, Belgium facility.

"Diluted earnings per share will be impacted by an estimated $0.20 in Fiscal Year 2006 due to design and capacity investments and the program is projected to be eleven percent accretive in Fiscal Year 2007," stated Jim Woodward, JLG's executive vice president and chief financial officer.

"The value of gaining access to these products, markets and unparalleled distribution system clearly merits the near-term dilution, and further positions JLG as a world-class access industry leader”.

“Based on current forecasts, sales in the first full year of production are expected to be in the range of $325 to $350 million and the program is projected to pass our targets of a 15 percent return on invested capital and less than 4 times invested capital to EBITDA during the second full year of production. As a result of this transaction and an updated review of our current forecast, we reaffirm fiscal 2006 sales are expected to increase between 15 and 20 percent.

Vertikal Comment

This is quite a coup for JLG, further boosting its market leadership in North America but also ratcheting its European market share up several notches.

Bill Lasky declared his intention to win at least 10 percent share of the European telehandler market within five years, This deal will take a big bite into this target and now makes that challenge look quite realistic.

The deal also complements last year’s agreement with Deutz Fahr, which gives good coverage of the Agricultural market. That transaction is only now getting of the ground, with the first 50 units now delivered.

For CAT this is a neat solution, it will free up capacity at it Leicester, UK facility for more Loader Backhoe, mini excavator and compact wheeled loader productio, while boosting a product range that was going nowhere fast.

In spite if its distribution network, the company seemed unable to develop a product range that captured the loyalty or imagination of non captive rental fleets or users.

JLG has already shown that it can develop winning models. With the Cat distribution network and CAT Rental stores, it looks like a winning combination. Watch out JCB, Manitou and Merlo.