Terex sells mining division
In a surprise move Terex has reached a definitive agreement to sell its mining business to Bucyrus International for $1.3 billion in cash,
The products included in the transaction include hydraulic mining excavators, electric drive mining trucks, track and rotary blasthole drills, and the highwall miner, as well as the related parts and aftermarket service businesses, including the company-owned distribution locations.
The transaction, which is subject to customary regulatory approvals, is expected to close during the first quarter of 2010.
Chief executive Ron DeFeo said: “This transaction accelerates the transformation of Terex Corporation as we move from a Construction and Mining Equipment Company to a Machinery and Industrial Products business. Going forward, we will focus on products and services where we can maintain and build superior customer propositions with high returns on capital for our owners. The current environment plus this transaction provide an excellent opportunity to create value. We plan to execute the changes needed to make this happen.”
“The sale of Mining to Bucyrus is good for customers, team members and shareholders. It is a classic proposition that strengthens the mining business for its customers and team members. For Terex, the attractive cash offer provides us excellent financial flexibility, as our cash balance will substantially equal our outstanding indebtedness.”
“The $1 billion of after-tax proceeds will allow Terex to invest in its current, high return-on-capital businesses, or to look to add new, well positioned niche manufacturers with strong market presence to the Company’s portfolio.”
“Mining is a highly capital intensive business. It would take us years to build the infrastructure to service and support new equipment sales in many of the key mining markets around the world where Bucyrus already has significant presence. We are confident that both Companies’ stakeholders will benefit from the transaction, with our mining customers being the ultimate beneficiaries. The journey to make this a great business will accelerate under the leadership of Bucyrus, which has a historically strong presence in surface mining with its rope shovel and dragline products.”
This is something of a surprise given that Terex has suggested in the past that the mining business provides it with a different economic cycle to its other more construction related operations while generating good margins.
However having failed to sell off its flagging construction business, this move transforms the liquidity of the company at the bottom of the cycle giving it room to breath and to take advantage of opportunities that will arise as the economy picks up.
After having added Fantuzzi earlier this year there was a risk that the company would have struggled to have to keep pace with the financial requirements of all of its businesses as growth returns. While it might have preferred to have kept the mining division it looks like a sound pragmatic decision.