2nd UPDATE: Caterpillar Expands Rail Unit With Locomotive Buy
June 01 2010 - 10:51AM
Dow Jones News
Caterpillar Inc. (CAT) announced plans Tuesday to expand its
rail business by paying $820 million in cash for U.S. locomotive
maker Electro-Motive Diesel.
The planned deal would double the size of Caterpillar's rail
franchise and pit the company against General Electric Co. (GE) in
the locomotive sector at a time when global demand is recovering
with the help of government-led stimulus efforts.
Retiring Caterpillar CEO Jim Owens steered the company into rail
with the 2006 acquisition of U.S. repair specialist Progress Rail,
a year after union opposition blocked its efforts to acquire
Electro-Motive Diesel, or EMD, from General Motors.
Caterpillar plans to retain the EMD brand after acquiring the
business from Berkshire Partners LLC and Greenbriar Equity Group
LLC. It aims to close by year-end, but offered no guidance on how
it will finance the purchase, or its impact on earnings.
EMD had sales of $1.8 billion last year, and claims to have the
largest installed base of locomotives in the world with 33,000,
including an expanding presence in China and India. GE has 15,000
locomotives operating worldwide.
Global locomotive sales have been highly cyclical, but are
starting to recover and offer higher-margin streams from servicing
trains and associated equipment.
The latest acquisition takes Caterpillar's spending on rail to
$2 billion, including recent small bolt-on deals for a U.S. leasing
company, and an equipment business acquired from GE.
"This acquisition represents the latest step in our strategic
plan to aggressively grow our presence in the global rail
industry," said Caterpillar Vice Chairman and CEO-elect Doug
Oberhelman in a statement.
Oberhelman, who takes over as chief executive in July, was
instrumental in the acquisition of Progress Rail.
EMD provides Caterpillar with a new market for its diesel
engines in the aftermath of the company's exit from the highway
truck engine market this year.
Shares of Caterpillar were recently up 0.59% at $61.12.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
Robert.tita@dowjones.com
(Doug Cameron and Matt Jarzemsky contributed to this
article.)
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