Zacks_Analysts' Blog : Joy Global to Sell LeTourneau Unit - Analyst Blog

Mining equipment maker Joy Global Inc. (JOYG) said it has agreed to sell the drilling products business of the recently acquired LeTourneau Technologies Inc. The company will sell the LeTourneau Technologies Drillings Systems and Offshore Products divisions to Cameron International Corporation (CAM) for $375 million in cash.

The LeTourneau unit designs offshore jack-up drilling rigs and manufactures primary components for the rigs, along with drilling equipment for large land and offshore rigs. LeTourneau's products include elevating systems, skidding systems, cranes, top drives, rotary tables, draw works, mud pumps and rig control and power systems.

The boards of Cameron and Joy Global have unanimously approved the transaction. The companies expect to close the deal during the fourth quarter of 2011, pending customary closing conditions.

Joy Global’s decision to sell the LeTourneau drilling products unit stemmed from its intention to focus on its core business of manufacturing surface and underground mining equipment. Also, the company expects this sale to expand its funding options to complete the planned acquisition of China-based International Mining Machinery Holdings Ltd.

As part of the deal, with Cameron, Joy Global will dispose the LeTourneau facilities in Houston and Vicksburg, Mississippi. However, it will retain a facility in Longview, Texas, where LeTourneau manufactures large capacity wheel loaders for the surface mining market. Joy Global had acquired LeTourneau International from Rowan Companies Inc. (RDC) for $1.1 billion in June 2011.

Based in Houston, Cameron provides flow equipment products, systems and services to worldwide oil, gas and process industries. The company expects the addition of LeTourneau’s portfolio of drilling equipment and rig components to enhance its products offering as well as provide opportunities to expand its drilling systems platform. Cameron expects this acquisition to be accretive to its 2012 earnings.

Based in Milwaukee, Wisconsin, Joy Global Inc. caters to consumers all around the world and provides manufacturing, distributing and servicing equipment for surface mining, through its P&H Mining Equipment division, underground mining, through its Joy Mining Machinery division and bulk material conveyor systems, through its Continental Crushing & Conveying division.

Joy Global has lifted its earnings forecast for fiscal 2011 by 40 cents to a range of $5.70 to $6.00. The Zacks Consensus Estimate of $5.75 per share for fiscal 2011 also lies well within the company’s guidance range.

We retain our Outperform recommendation on Joy Global. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the shares over the near term.