For online stock trading, insight by stock market experts is pretty valuable in studying and analyzing the market. Strategic mergers and acquisitions are important to follow, such as what's set to happen in the mining sector.

Japanese mining equipment giant Komatsu is to acquire Joy Global, the much smaller American mining equipment manufacturer, for $2.9 billion. This means the global $50 billion-a-year mining equipment industry will have just two big companies dominating it, Komatsu Ltd and Caterpillar Inc., the larger American rival to Komatsu.

Sluggish Mining Industry Affecting Equipment Companies

As you probably know already, the mining industry isn't doing well, and this has reflected on equipment sales too. Dropping prices for iron ore, coal and copper have brought down the demand for mining equipment. This has caused equipment manufacturers to streamline their functioning and cut costs by downsizing their operations. Mining companies have also indicated that they will continue to spend lesser on equipment and also mine expansions, next year.

Komatsu is unperturbed and feels that this acquisition of Joy Global will foster new innovations which will make customers want to buy their products more as the market gets back to the recovery stage. The company believes the acquisition will enable it to sell more complete equipment lines, the total range of mining equipment that will give it greater capability to compete with Caterpillar. Komatsu manufactures those mammoth dump trucks that are used in mining for hauling earth and mined material.

Joy Global Acquisition - Wise or Not

Joy Global was always seen as a target for acquisition by some large company. More than half of its annual sales are from coal mining that has been particularly hit by the low natural gas prices. Stricter environmentally oriented legislation has also contributed to the decline, since there is now much reduced usage of coal for electricity generation. Reduced coal usage in the US could result in a long term effect on the success of Joy, and Komatsu plans to operate it as a separate subsidiary. Joy's sales in 2015 were only $3.1 billion, which was a massive 44% decline from the high reached in 2012.

So the success of this acquisition by Komatsu depends on the recovery of the equipment market. It is worth remembering that rival Caterpillar had a somewhat similar strategy when it acquired another mining equipment manufacturer in 2011 for around $8 billion, Bucyrus International. While the deal appeared to be a wise one at a time when the market for mined commodities was booming, the company's equipment sales have significantly declined in the past years.

For stock traders, it is certainly important to wait and watch. Stock market experts would know that this deal does have potential, but it all depends on the market. For such insight and innovative resources and software solutions for better online trading, contact TradeZero at +1 954-944-3885. You can also email support@tradezero.co.

 

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