Japan’s Hitachi Construction offers $529m to buy Australian parts maker Bradken

A second Japanese mining equipment maker is positioning itself for a recovery in commodities, after Hitachi Construction Machinery Co. followed its larger competitor Komatsu Ltd. in announcing what would be its biggest-ever acquisition.

Hitachi Construction, the world’s top maker of giant excavators, has offered A$689 million ($529 million) to buy Australian component maker Bradken Ltd. In July, Komatsu agreed to purchase U.S.-based rival Joy Global Inc. for a record $2.89 billion, signaling its optimism that demand for diggers and loaders will rebound after years of declining commodity prices.

“Miners have put the brakes on too hard,” Shinji Kuroda, an analyst at Credit Suisse Securities (Japan) Ltd., said by phone from Tokyo. “So the rebound will come at some point even if commodity prices continue to slump. The current size of demand for machines and parts has fallen below sustainable levels. The time for a recovery is coming. ”

Tokyo-based Hitachi Construction said Monday it’s offering A$3.25 a share, or a 34 percent premium on Bradken’s closing price on Friday. The Newcastle, New South Wales-based firm saw its stock surge 32 percent in Sydney to A$3.20 after its board recommended the deal.

The acquisition will enable Hitachi Construction to supplement its parts business for mining equipment and boost earnings, according to a statement. Nomura Securities Co. reckons the deal is likely to boost profit by about a tenth.

Bradken “appears to have a degree of competitiveness and profitability, raising the possibility of relatively stable profits as and when sharp corrections in demand for mining machinery come to an end,” Katsushi Saito, managing director of Nomura Securities, said in a note dated Oct. 3. “The number one priority will be to successfully complete the restructuring process at Bradken.”

Bradken, founded in 1922, produces goods from excavator parts to mineral crushing equipment. It announced in August it would streamline units and consider divesting non-core businesses. Nomura calculates the deal will boost Hitachi Construction’s earnings per share by about 10 percent for the financial year through March 2018.

The purchase will create synergies worth more than 20 billion yen ($196 million) in five to six years, Hitachi Construction’s Chief Executive Officer Yuichi Tsujimoto told a briefing. While the company doesn’t expect a demand recovery for mining equipment this fiscal year, it sees mid to long-term growth in the sector, he said.

Metals Prices

Metals prices, as measured by the London Metals Exchange index of six contracts, entered a bull market last week, as an improving economy in China, the top consumer, and supply constraints caused by miners chopping production begin to reverse five years of losses.

“Demand for mining equipment could show double-digit growth in 2017,” said Credit Suisse’s Kuroda. And while the market won’t return to previous record levels, “the percentage growth could be big,” he said.

Hitachi Construction plans to start a tender offer for Bradken for six weeks from mid to late-October, according to its statement. The Australian company last year rejected a A$428 million offer from Koch Industries Inc. and Pacific Equity Partners, saying it didn’t reflect its value.

Hitachi Construction will use funds on hand as well as bank borrowing to finance the acquisition, which includes Bradken’s debt of A$288 million. It will also provide an interim A$450 million credit facility if existing debt provisions are affected by the change in control, according to a statement from the Australian company. The deal is subject to regulatory approvals.

The Japanese company, half owned by conglomerate Hitachi Ltd., is Japan’s No. 2 maker of construction and mining equipment and has the biggest share globally of giant excavators used in mines. Its stock gained as much as 1.8 percent in Tokyo and traded 1.1 percent higher at 2,034 yen as of 1:19 p.m. Komatsu, behind only Caterpillar Inc. of the U.S. in the sector, declined 0.2 percent.

Also Read:

Japan’s Komatsu to buy US mining equipment maker Joy Global for $2.9b

Australia: Bradken’s board blocks CHAMP’s bid to increase stake, appoint new chairman

Bloomberg

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.