Matt Ralls, President and Chief Executive Officer, commented, "We are pleased to enter into this agreement with Joy to monetize our investment in LeTourneau. This transaction is consistent with our stated strategy to separate non-core businesses, and we expect that most of the after-tax proceeds, estimated at approximately $875 million, will ultimately be redeployed into our offshore drilling business, either through continued growth of our high-spec jack-up fleet or expansion into the ultra-deepwater drilling segment.
"We also expect this transaction to create additional opportunities for LeTourneau and its employees, who will become part of an organization that is focused on manufacturing and will continue to encourage further innovations in both the mining equipment and drilling systems businesses. I want to personally thank the LeTourneau management team for the many organizational and operational improvements they have made in the company and their invaluable assistance in reaching an agreement with Joy. I likewise want to thank all of the LeTourneau employees for their dedication and service over the years as part of the Rowan family."
Barclays Capital is acting as financial advisor to Rowan.
In a statement issued today, Joy Global noted that LeTourneau operates two business segments — mining products and drilling products. The mining products business is the world's leading manufacturer of large wheel loaders for surface mining, providing the industry's largest model sizes and payload capacities. LeTourneau's mining products business had calendar 2010 revenue and EBITDA of $259 million and $67 million, respectively.
LeTourneau's drilling products business is a leading designer of offshore jack-up drilling rigs as well as a manufacturer of the primary components for these rigs. It is also a major manufacturer of drilling equipment for large land and offshore rigs and of specialty steel products. LeTourneau's drilling products business had calendar 2010 revenue and Adjusted EBITDA* of $556 million and $38 million, respectively.
"This acquisition represents a compelling opportunity for Joy Global Inc. and our shareholders, with strong growth prospects for both the mining products and drilling products business segments," said Joy Global President and Chief Executive Officer Mike Sutherlin. "The LeTourneau mining products business is a natural fit with our P&H business. It adds another solution for surface loading that complements our electric mining shovels, and gives us access to smaller and non-electrified mines. The drilling products business moves us into another area of resource extraction that has similar fundamentals and value drivers as surface and underground mining, and therefore is a good fit for our business model which focuses on equipment reliability and Life Cycle Management. Oil and gas has been defined as a strategic growth opportunity for a number of years, and LeTourneau gives us a great entry point into this sector. We welcome the LeTourneau team to Joy Global Inc. and look forward to working together to pursue the growth opportunities that come with the combined business."
LeTourneau is well positioned to grow its mining business as mine expansion continues. It is the only manufacturer of electric drive loaders and has the broadest range and largest sizes of wheel loaders in the mining industry. These are the only wheel loaders with installed power greater than 2000 gross horse power rating, and the only wheel loaders capable of loading 400 ton haul trucks. LeTourneau's mining products business will be integrated with Joy Global Inc.'s P&H Mining Equipment business.
Randy Baker, President and COO of P&H Mining Equipment said, "The addition of LeTourneau's front-end loaders will enhance our product offering and leverage our existing manufacturing and product distribution networks. We expect a smooth integration since P&H already serves as a dealer for LeTourneau in key geographies around the world. In addition, LeTourneau's electric drive technology is more efficient than mechanical drive systems, which has resulted in strong order growth. We believe that the LeTourneau business gives us the opportunity to further build on our Life Cycle Management strategy by adding a complementary product range that brings volume and scope to our aftermarket business. We intend to use this acquisition to more efficiently provide our customers with better service levels. As a result, we will look for ways to integrate the LeTourneau and P&H field facilities and distribution activities."
LeTourneau's drilling products business is expected to benefit from the renewal of a new rig build cycle for both offshore and land rigs. This demand is driven by the increased requirement for new, high-specification rigs and the emerging need to replace the majority of the jack-up fleet that is approaching its design life. This industry trend is well supported by 22 new jack-up rig orders thus far in 2011, with options for 28 more. With a full suite of drilling equipment and well recognized brands, LeTourneau is ideally positioned to benefit from this improvement in the land and offshore drilling markets. LeTourneau's revenues have been restricted because its addressable customer base largely competes with Rowan for drilling contracts, and therefore the change of ownership will significantly expand LeTourneau's market acceptance.
LeTourneau's calendar 2010 financial results had revenues of $815 million and Adjusted EBITDA* of $105 million. Although this acquisition is primarily focused on growth and operating leverage opportunities, Joy Global Inc. estimates $40 million in synergies, achievable by 2013, as a result of manufacturing and supply chain efficiencies across both segments and the integration of aftermarket infrastructure in mining. The company also expects that the LeTourneau drilling products business will realize higher incremental margins as volumes improve from 2010.
Joy Global Inc. expects that the acquisition will be earnings accretive in fiscal 2011, excluding deal costs and excess first year purchase accounting charges. The company will finance the transaction with a combination of cash and additional borrowings.
May 16, 2011