Komatsu And Joy Global?

I heard an odd rumor the other day ... namely that Komatsu (Nasdaq: KMTUY) would consider taking a run at Joy Global (Nasdaq: JOYG) in an attempt to basically match Caterpillar's (NYSE: CAT) acquisition of Bucyrus and create another highly vertically-integrated mining company.

On the very outermost surface, it makes sense. Komatsu is big enough that it could conceivably do a deal, and Komatsu does have a relatively large business in trucks, haulers, shovels and other above-ground equipment useful in mining, as well as construction equipment that I'm sure has dual-use utility in areas like mining. Moreover, Komatsu has a pretty respectable presence in the emerging markets where a lot of mining activity is occurring. The only thing the combination of Komatsu and Joy Global would lack is underground trucks/loaders and drills.

Still, I don't buy it. Quick - name the last big acquisition made by a Japanese company. That's the problem ... Japanese companies by and large don't buy other companies and it's even less common in the industrial sector. I don't know if there is a fear of a culture clash, an arrogance that a foreign company would have little to offer, or simply an understanding that most deals don't work. Whatever the case, it is pretty rare for Japanese industrial companies to step up and buy large American industrial companies.

With that in mind, it makes the acquisition prospects of Joy Global a little ... interesting. Hitachi (NYSE: HIT) has some of the same above-ground machinery as Komatsu, but also happens to be a Japanese company. And while Liebherr has some above-ground mining business, that would be a pretty big swing for a company of Liebherr's size, particularly since it is private and can't really use equity to do the deal. Sandvik complements Joy Global in a few niches but overlaps in others, and probably wouldn't be interested.  

Atlas Copco (Nasdaq: ATLKY) might be a darkhorse to consider, though.  Atlas's mining business is highly concentrated (drills, underground vehicles, and such), but Joy Global would certainly be a means of taking a larger step into a sector that is clearly benefiting from booming cap-ex now and for at least the next few years. Atlas is just slightly smaller than Komatsu in market cap terms and could likely afford the deal. It would obviously leave a gap in some of the above-ground equipment niches, but not so much so that it would negate the logic to a deal.

So, there you have it ... Although it makes a certain amount of sense to hear rumors that Komatsu would consider buying Joy Global, I'd argue it's even more likely that Atlas Copco would be the bidder if Joy Global were to get a takeover offer. Time will tell, though, and the most likely outcome is probably no deal at all.