Hitachi Construction Machinery Co., the world’s biggest maker of giant excavators, has offered 689 million Australian dollars ($529 million) to buy Australia’s Bradken Ltd. The purchase would be its biggest ever and is likely to boost profit by about 10 percent, Nomura Securities Co. said.
The Tokyo-based company said it is offering AU$3.25 a share.
The acquisition will enable Hitachi Construction to supplement its parts business for mining equipment and boost earnings, according to a statement. The announcement comes about two months after its larger domestic rival, Komatsu Ltd., agreed to buy U.S.-based Joy Global Inc. for $2.89 billion, signaling the company’s optimism that demand for diggers and loaders will rebound after years of declining commodity prices.
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 report.
The No. 1 priority will be to successfully complete the restructuring process at Bradken, he added.
Bradken, founded in 1922, produces excavator parts to mineral crushing equipment. It announced in August it would streamline units and consider divesting noncore 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 in five to six years, Chief Executive Officer Yuichi Tsujimoto told a briefing. While the company does not expect a demand recovery for mining equipment this fiscal year, it sees mid- to long-term growth in the sector.
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 AU$428 million offer from Koch Industries Inc. and Pacific Equity Partners, saying it did not reflect its fair value.
The Japanese company will use funds on hand as well as bank borrowing to finance the acquisition, which includes Bradken’s debt of AU$288 million. Hitachi Construction will also provide an interim AU$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.
Hitachi Construction, half owned by conglomerate Hitachi Ltd., is Japan’s second-biggest maker of construction and mining equipment and has the biggest global share of giant excavators used in mining.