For $1.3 billion in cash, Terex Corp. is selling its mining business to South Milwaukee, Wis.-based Bucyrus International Inc., part of a surprise new strategy by Terex to focus on industrial machines versus its longtime product lines in construction and mining.
Separately, the Westport-based company served notice it would restore the salaries of senior executives affected by a 10 percent cut in pay made last year, though Terex said it would end, however, most perks provided to its executives in the past, including company automobiles, club membership dues, financial planning services and the use of private aircraft, among others.
Still, the restoration of pay for senior executives comes against a backdrop of Terex designating more than 3,000 jobs for elimination in the first nine months of 2009. During that period, Terex losses totaled $256 million as revenue fell by more than half its levels a year earlier to $3.8 billion.
The Bucyrus buy drills deep into Terex”™ catalog, including the purchase of hydraulic excavators made in Germany; electric trucks assembled in Mexico; blast-hole drills rigged in Denison, Texas, and in England; and high-wall miners fabricated in Beckley, W.Va.
Â
The unit produced $1.4 billion in revenue last year, but was hard hit in 2009 by the recession. Bucyrus, by contrast, enjoyed increases in both sales and profits in the first three quarters of 2009.
Â
“This transaction accelerates the transformation of Terex Corp. as we move from a construction and mining equipment company to a machinery and industrial products business,” said Ronald DeFeo, CEO of Terex, in a prepared statement. “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.”
That message was at odds with the one DeFeo delivered in an October review of the company”™s third quarter results with investment analysts, despite acknowledging “a tough quarter” for mining equipment.
“Our mining team ”¦ (is) seeing positive indications such as a much-reduced order cancellation rate, and positive parts trends reflecting machines that were once parked are now back to work,” DeFeo said at the time. “This business has large orders, long lead times, and has always been lumpy in nature. We expect it to rebound in (the fourth quarter). We have a significant amount of new product development going on which will impact next year. The recent rebound in commodity pricing has given confidence to many of our customers, which we expect to translate into orders over time ”¦ This business will be a positive profit contributor in the near future.”
Terex also makes materials-handling equipment used in mines, such as crushers and screening equipment. Terex”™ construction business includes backhoes large and small; wheeled and tracked loaders; dump trucks, cement mixer trucks; and road building equipment like graders.
Appearing on CNBC after the deal”™s announcement, DeFeo declined to go into specifics on where the company might spend the $1.3 billion in cash it gets in the deal, but said the company sees the opportunity to buy assets at low valuations and build up those businesses over time.
