According to a report in the Wall Street Journal, Caterpillar has reached an agreement to buy Chinese coal equipment company, ERA Mining Machinery, for USD 887 million, giving it greater exposure to the potential opportunities in the modernization of China’s coal mines.

Caterpillar’s offer represents a 33% premium to ERA’s stock price in Hong Kong before trading was halted in expectation of a takeover announcement. ERA primarily makes hydraulic roof supports for underground mines and is the third largest maker of roof supports in China based on sales.

The purchase would build on Caterpillar’s recent acquisition of Bucyrus. Although Bucyrus makes roof supports, these are very much premium first tier products, which have difficulty competing with China’s own domestic second and third brands and product lines.

China’s coal mines in some cases also have significant loyalty to domestic machinery brands. Joy mining recently made a similar move to gain a greater presence in China, with its takeover of International Mining Machinery. Demand for coal in China has been growing quickly as rapid development drives expansion of coal-fired power stations.

(Sourced from Wall Street Journal)