Joy Global In Talks with Jordan Co.’s IMM

Mining equipment maker Joy Global Inc. is in talks to buy private equity-backed International Mining Machinery Holdings Ltd., a maker of coal-mining equipment in China, Reuters reported Thursday. IMM is currently controlled by private equity firm Jordan Co. The company’s market capital it roughly $1.1 billion.

(Reuters) – U.S.-based mining equipment maker Joy Global Inc is in talks to buy International Mining Machinery Holdings Ltd , a maker of coal-mining equipment in China, a source familiar with the matter told Reuters on Thursday.

International Mining Machinery (IMM) shares were suspended from trading in Hong Kong on Tuesday, pending price sensitive information. IMM, controlled by private equity firm Jordan Co LP, has a market value of HK$8.5 billion, or about $1.1 billion, according to Reuters data.

Joy Global could not be reached for comment, while IMM declined comment. The source declined to be identified as the discussions were private. Bloomberg first reported the story.

“Joy Global’s potential foray into China’s coal mining equipment space does not surprise us given management commentary around the importance of China as a major growth driver,” brokerage Piper Jaffray said in a note to clients.

A deal would make strategic sense, partly because it would keep Caterpillar Inc from gaining further scale in China, Baird Equity Research analyst Robert McCarthy said in a note.

China is the world’s largest coal mining market, three times the size of the U.S. market.

If a deal is reached, it would become the latest in a string of acquisitions of Chinese companies by foreign industrial enterprises in the past week.

Nestle , the world’s largest food company, said on Monday it is paying $1.7 billion for a 60 percent stake in Singapore-listed candymaker Hsu Fu Chi International to move deeper into fast-growing markets in China.

British drinks group Diageo won approval last month to increase its stake in Sichuan Shuijingfang , China’s fourth largest white spirits group.

ACQUISITION PREMIUM

There has been speculation over the past year that Jordan Co would sell off its controlling IMM stake it bought a few years ago. TJCC Holdings Ltd, a unit of Jordan Co, owns 41.14 percent of IMM after selling 175 million shares of the company, representing 13.46 percent of its share capital, in October.

Piper Jaffray said Joy Global may pay up to a 30 percent premium to IMM’s Monday stock close price of HK$6.55, citing median valuation for global coal mining and construction equipment acquisition deals of 13 times EBITDA (earnings before interest, tax, depreciation and amortisation).

IMM was listed in Hong Kong in Feb 2010, with an IPO price of HK$4.88 per share, compared with Monday’s closing price of HK$6.55 a share.

If it won control of IMM, Joy Global could add 40 cents per share to fiscal 2012 earnings, Baird Equity Research’s McCarthy said. Joy Global is forecast to earn $7.24 per share next year, according to Thomson Reuters I/B/E/S.

Joy Global shares rose 1.2 percent to $95.35 in afternoon trading on the Nasdaq.

In May, Joy Global said it would buy Rowan Companies Inc’s drilling and mining gear unit for $1.1 billion in cash as it looked to offset competition in its main market by entering the oil and gas drilling business.

Joy Global’s expansion into a new market follows Caterpillar’s $7.6 billion purchase of main rival Bucyrus — a deal that leaves Joy Global as the last stand-alone United States-based maker of mining equipment.

Caterpillar completed the Bucyrus deal this week. (By Alison Leung and Denny Thomas;
Additional reporting by Nick Zieminski in New York; Editing by Charlie Zhu and Lincoln Feast)