Caterpillar Makes Offer for Chinese Machinery Firm

Company says it has a long-term commitment to continue to invest in China in order to support its growing base of Chinese customers.

Caterpillar Inc. is interested in buying Chinese company ERA Mining Machinery Ltd. for up to $894 million, as part of its push into the booming Asian economy.

"Our announcement today underscores Caterpillar's long-term commitment to continue to invest in China in order to support our growing base of Chinese customers," Caterpillar executive Steve Wunning said.

The purchase, which is subject to shareholder and government approval, would give the industrial giant a piece of the Chinese underground coal mining equipment market through ERA subsidiary Zhengzhou Siwei Mechanical & Electrical Equipment Manufacturing Co. Ltd.

"We intend to build on Siwei's strong reputation and relationships in China, further investing in its mining roof support business and operations, while utilizing Caterpillar's global reach and organization to help bring Siwei's products to more customers outside of China," Wunning said.

ERA Chairman Emory Williams endorsed the offer, saying Caterpillar would "continue to make a substantial ongoing contribution to the industry in China."

The offer consists of two options including an all-cash alternative valuing the company at HK$0.88 per share. Depending on the subsequent profitability of ERA, the offers value the company at $578-$894 million.

Caterpillar raised its full-year outlook last month as it reported that profit soared 44% in the third quarter from a year ago on strong revenues.

Caterpillar posted a $1.14 billion profit for the July-September period, compared with $792 million in the 2010 third quarter. Earnings per share excluding special items were $1.71, widely topping Wall Street expectations of $1.55.

The company, whose fortunes are closely watched as a bellwether of the global economy, bought a majority stake in China's Shandong Engineering Machinery Co. in 2005 and acquired the remaining shares three years later.

China's reliance on coal-fired energy is expected to soar in coming years as the economy grows and modernizes, the Wall Street Journal reported.

Copyright Agence France-Presse, 2011

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