BUCY Bucyrus International, Inc. (MM)

Joy Global Inc. (JOYG) intends to purchase mining-equipment manufacturer LeTourneau Technologies Inc. from Rowan Cos. (RDC) for $1.1 billion, as Joy Global moves to counter Caterpillar Inc.'s (CAT) acquisition of rival Bucyrus International Inc. (BUCY)

Joy Global's acquisition of LeTourneau will give the Milwaukee company exposure to oil- and gas-drilling equipment and will expand Joy's line of high-horsepower wheel loaders. LeTourneau specializes in giant electric-drive wheel loaders for surface mines.

"I believe LeTourneau is a high-quality business at a good value," said Chief Executive Mike Sutherlin during a conference call Monday. "We can add substantial value to LeTourneau's drilling business. We also know the LeTourneau mining business very well."

Rowan, meanwhile, plans to use the proceeds from the all-cash deal to expand its offshore drilling business. Joy Global already distributes LeTourneau mining equipment in some markets. Sutherlin said he expects the business to be accretive to Joy Global's earnings in the first year after the deal is completed and predicted that Joy Global will achieve $40 million in cost-reduction synergies by 2013. LeTourneau reported revenue of $815 million in 2010 and pre-tax income of $105 million. Completion of the deal is expected by the end of the summer.

Caterpillar's $7.6 billion acquisition of Bucyrus International late last year put pressure on Joy Global to make a move as the only remaining pure-play company in the surface- and underground-mining-equipment market. Caterpillar, the world's largest maker of construction equipment by sales, is widely seen as having a size advantage over Joy Global once its purchase of Bucyrus is completed later this year.

By acquiring LeTourneau, Joy Global will be able to pivot into the oil and gas industry as well as fortify its mining-equipment business, particularly for mine sites in remote locations that rely on the wheel loaders because they lack electricity to power electric mining shovels.

"This fits very strategically with our business," Sutherlin said. "It's going to give us some great opportunities. We see ourselves as a business that understands the resource-extraction business very well."

Orders for mining equipment have improved in recent quarters as higher prices for commodities such as copper and coal provide an incentive for mine operators to revive expansion projects and plans for new mine sites shelved in late 2008 when demand and prices collapsed.

Rowan had planned to divest itself of its equipment-manufacturing operations when market conditions became favorable. Rowan's first-quarter earnings fell 50%, due in part to delayed shipments at LeTourneau and one-time costs in its offshore drilling business. Rowan said LeTourneau's performance has been hampered by having a customer base of drilling companies that also compete with Rowan's drilling business.

Rowan expects the sale to provide after-tax proceeds of $875 million. The Houston-based company intends to use the money to either expand its jack-up-rig fleet or move into the ultra-deep-water drilling market.

"This transaction is consistent with the strategy we've been communicating to you for the last two years," Rowan CEO Matt Ralls said during a conference call with analysts. Ralls noted that Rowan had been considering a spinoff of LeTourneau as a separate company before Joy Global approached the company about buying the business.

"It was not an easy decision to bypass that potential [spinoff], but given the liquidity provided to Rowan for its expansion, we were able to look at an outright sale," he said. "The fit with Joy Global is excellent."

Joy Global's stock was recently trading up 1.7% at 89.17. Rowan was up 2.3% at $38.93 a share.

   -By Bob Tita, Dow Jones Newswires; 312-750-4129; 
   robert.tita@dowjones.com 
   --Lauren Pollock contributed to this article. 

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