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Details Emerging about Komatsu’s Acquisition of Joy Global

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Market reaction to Joy Global’s sale

Japanese mining equipment maker Komatsu (KMTUY) has agreed to buy US rival Joy Global (JOY). The news was announced on July 21, 2016, before market hours, sending JOY’s shares upward in early trading. The stock rose by 19.7% from the opening price of $23.5 and closed at $28.2.

On a yearly basis, from July 21, 2015, until July 21, 2016, JOY declined by 0.5%, as compared to a 2.3% increase for the broad-based S&P 500 Index (SPY). On a YTD (year-to-date) basis, from January 1, 2016, to July 21, 2016, JOY has climbed 137.8%.

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Details about the Joy Global-Komatsu deal

The deal is worth approximately $3.7 billion, including JOY’s debt. Komatsu, Japan’s leading construction-equipment maker, will pay $28.30 per share in cash ($2.9 billion) to acquire Milwaukee-based Joy Global. The acquisition price is at a 20% premium to Joy Global’s Wednesday’s price of $23.55 per share and at a ~50% premium to JOY’s three-month average price.

At $3.7 billion, Komatsu will pay 1.65 times Joy Global’s annualized six months’ sales. Later, Joy Global will be Komatsu’s wholly owned unit.

When is the deal expected to close?

The deal is expected to be closed in mid-2017, according to Komatsu’s comments. The deal is subject to approval by Joy Global’s shareholders and to regulatory scrutiny. But will Joy Global still be a listed entity or will be delisted? That will depend on shareholders, legal approvals, and Komatsu’s vision going forward.

ETF investments

Notably, JOY is a part of the Guggenheim S&P Mid-Cap 400 Pure Value ETF (RFV) and accounts for 3.4% of the fund’s total holdings. Talen Energy (TLN), United States Steel (X), and KB Homes (KBH) are among the top ten holdings of RFV, accounting for 3.1%, 2.6%, and 2.2%, respectively, of RFV.

For a better understanding of how could Komatsu benefit from the acquisition, continue to the next part.

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