Joy Global could still have other bidders

Investors buying stock above offer price

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Milwaukee-based Joy Global Inc., which announced last week it would be acquired by a U.S. subsidiary of Japanese mining firm Komatsu Ltd., could still have other bidders.

Joy Global
Joy Global’s Milwaukee production facility at 4400 W. National Ave.

“I think it’s possible. I don’t know how likely it is,” said Mircea Dobre, CFA, director and senior research analyst covering Joy Global at Milwaukee-based Robert W. Baird & Co. Inc. “Just my own view is that the value of the transaction, which boils down to $28.30 (per share), effectively does not extract as much value as there should be for Joy’s shareholders. In our view, something closer to $40, frankly above $40, would accomplish that.”

On Friday, Joy Global’s stock was trading above the $28.30 offer price, which led some to speculate investors are expecting a higher offer for the company.

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Joy Global, a global mining giant that has struggled in recent quarters, is a premier acquisition target and there are some signs the mining industry may be stabilizing, so it would make sense another mining player could be looking closely right now, Dobre said.

“It is my view that this is one of the most valuable assets, pure play mining assets, available globally,” he said. “So players in that industry, whether they are Komatsu or someone else…they would look at Joy Global as a high-quality premier asset that they would be purchasing during one of the most severe downturns in mining in 20 years.”

But there could be another explanation for the stock surge, he said. About 17 million shares, comprising 18 percent of Joy Global’s shares outstanding, were shorted by investors ahead of the acquisition announcement, and those investors were forced to cover their positions as soon as the deal was revealed.

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“Because those folks were squeezed, literally, they ended up having to pay an even higher price than that offer price,” Dobre said. “Separating one (reason for the stock increase) from the other, as you can appreciate, it’s almost impossible.”

If there is another potential buyer waiting in the wings, that company would have some time to make an offer, since the Joy Global deal is not expected to close for about a year, he said.

Joy Global competitor Caterpillar Inc. wouldn’t be a potential buyer, Dobre said, but Volvo, Atlas Copco, GE and Liebherr Group would have the capital and motive to acquire Joy.

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“The clever thing to do is to buy low and sell high, right? This is what needs to be happen in the mining industry—we need to see further consolidation and we will see further consolidation,” he said. “What ends up happening is the best deals in terms of M&A are in an environment where it’s been tough but it’s starting to stabilize.”

Komatsu made its move to acquire Joy Global with a long-term view of the recovery that’s expected for mining over the next several years, Dobre said.

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