In reading all the news about Caterpillar’s recent acquisition of surface- and underground-mining company Bucyrus, our water-cooler conversation here at the office features some different takes on the deal’s importance.
While Cat is seen to have bet on the rising commodities market and has touted its move as the biggest in the company’s history, some of us see the acquisition as nothing more than an opportunity to grow business overseas. Yet we aren’t discounting Caterpillar’s deal making and influence in the mining business.
In terms of domestic mining, this deal shouldn’t do much of anything, other than boost the company’s bottom line, stock price and market share — arguably a major hope for relatively new CEO Doug Oberhelman. The majority of Cat’s business these days, especially as far as mining equipment is concerned, has spread to the developing world. “The emerging market demand is really what’s driving things, said Jefferies & Co analyst Stephen Volkmann in a Reuters report. (Bucyrus, also according to Reuters, does a third of its business abroad.) With global demand continuing to be strong, why shouldn’t it?
Source: Reuters Metals Insider, Nov. 16
But it’s hard to discount the fact that the domestic economy and its housing market are still sluggish, and construction here is at a relative standstill compared to more active construction scenes in Asia. This creates quite an ironic backdrop for Caterpillar’s intent to center its mining business in South Milwaukee (where Bucyrus’s offices are). Cat hired nearly twice as many employees outside the U.S. in the first half of 2010: 1,240 domestic workers to about 2,400 abroad, according to their Web site. Cat gained 38 percent of their 2009 sales and revenue in North America, while 62 percent came from the rest of the world. David Lee Smith writes in a post for The Motley Fool that the company doubled profit in the third quarter due in no small part to BRIC economies’ eagerness to tap into their mineral-rich reserves — and Cat’s earlier shedding of 37,000 full-time and contract workers.
As much as I’d love to, it gets harder and harder to stick to the credo “Keep Manufacturing Jobs in the States. And deals like this, of course, often have very little to do with that. We have to call a spade a spade: a huge international mining equipment company betting on better demand abroad than in their own backyard. After all, the distances from Peoria or South Milwaukee to Chilean copper mines or South African platinum pits at least in an economic sense get shorter and shorter all the time.