Investopedia: Digging Into A Joy Global Rumor

About a month ago I reviewed mining equipment company Joy Global's (Nasdaq:JOYG) earnings and speculated that "It might also be worth wondering, though, whether the company would consider additional deals - say like the acquisition of International Mining Machinery, China's leading mining equipment company - to expand into particular regional markets." Now Bloomberg, Reuters, and several other sources are reporting rumors that the two companies are in advanced merger discussions. 

The Deal That May Be  
Prior to these rumors leading to a halt in trading of International Mining Machinery's (Nasdaq:ICMHF.PK) shares on the Hong Kong exchange, the company carried a $1.1 billion market valuation. Although IMM's share price has been depressed a bit on fears of a slowdown in economic activity and the widespread expectation that major owner Jordan (which owns 41% of shares) will be selling shares, Joy Global will likely need to offer something on the order of $1.3 billion to get a deal done. 


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Investopedia: Joy Global - Minerals or Machines?

It is interesting to see that Joy Global (Nasdaq:JOYG), one of the world's leader manufacturers of mining equipment, is still trading at historically healthy multiples while many leading miners like Vale (Nasdaq:VALE) and Freeport McMoRan (NYSE:FCX) have been a little weaker. Then again, with long lead times for new equipment and fewer vendors to choose from (especially now with the Caterpillar (NYSE:CAT) acquisition of Bucyrus), it makes a certain amount of sense that Joy Global would be seen as the more stable, longer-term play. 


A Solid Second Quarter
Joy Global rebounded from a disappointing fiscal first quarter with a strong performance this time around. Revenue rose 19% and though it did not top the very highest analyst estimates, it was still a fair bit stronger than the middle of the range. Revenue growth was also relatively balanced; original equipment sales were up 10%, while aftermarket was up 24%. Growth was also split nicely between underground and surface; up 19% and 15% respectively, with underground still representing more than half the total business.

With stronger aftermarket equipment sales, it was not surprising to see stronger margins at Joy Global. The company picked up some momentum on the gross margin line and ultimately saw operating margin expand almost two points as operating income increased nearly 30% from the year-ago level. 



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Investopedia: Joy Global Fills A Gap

With Caterpillar's (NYSE:CAT) acquisition of Bucyrus making it a soup-to-nuts provider of equipment to the mining industry, the question has lingered as to how Joy Global (Nasdaq:JOYG) would respond. Would Joy Global consider a merger with another global equipment company like Komatsu (Nasdaq:KMTUY.PK) or Atlas Copco, or would it try to buy or build its way closer to parity with Caterpillar's offerings? 

Right now, it looks as though Joy Global is taking the second approach.

Making a Deal with Rowan
Joy Global and Rowan (NYSE:RDC) announced Monday morning that they had reached an agreement whereby Joy Global would acquire Rowan's LeTourneau Technologies business. Rowan had been looking to sell this business, and the purchase price of $1.1 billion is a reasonable premium to the $700 million to $900 million range that many analysts had applied to the business.

At $1.1 billion, Joy Global is paying about 10.5 times trailing EBTIDA and perhaps even less on a pro forma basis if Joy Global's assumptions about synergies prove accurate.


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Investopedia: Transocean's Lull Creates Buying Opportunity

Offshore drilling company Transocean (NYSE:RIG) shows the power of the "whisper" number. Although the company reported disappointing results on Thursday, the stock actually traded up - a move that does not seem to make much sense until you look at the prior month's trading and see that the stock has been going almost straight down. 


Even allowing that other drillers like Noble (NYSE:NE) and Pride (NYSE:PDE) haven't done well either, Transocean stands out. Likewise, Rowan (NYSE:RDC), Atwood (NYSE: ATW), and SeaDrill (Nasdaq:SDRL) have all been weak on a generally poor near-term outlook for offshore operators. Also keep in mind that Transocean's earnings estimate dropped by about one-third over the past three months - investors were bracing for bad news, they got it, and they are apparently relieved it was not even worse than they assumed.


Q1 Results - No Work, No Money
Transocean owns an impressive fleet of rigs (about 20% of the worldwide offshore fleet), but they are little more than depreciating hunks of metal when there are not enough orders to keep them busy. For the first quarter, revenue was basically flat with the fourth quarter. Dayrates were actually a fair bit better, up about 5%, and rates were even better for ultra-deepwater and harsh-environment rigs. (For more, see A Primer On Offshore.)


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