Bloomberg News

Komatsu CEO Looks for Acquisition Targets in U.S., Europe

December 08, 2011

(Updates with closing share price in seventh paragraph.)

Dec. 1 (Bloomberg) -- Komatsu Ltd., the world’s second- largest construction machinery maker, is looking for potential acquisition targets in the U.S. and Europe and plans to conclude a deal within three years, President Kunio Noji said.

The company is keen on parts producers and technology ventures that make electronic components and systems to upgrade its hybrid earth-moving machines and mining trucks, Noji said in an interview at the company’s headquarters in Tokyo. Komatsu is also looking for a manufacturer of underground mining equipment to expand its products, he said.

“There are lots of good companies,” Noji said. “Right now it’s difficult to persuade targeted companies to be part of our company, and we don’t do hostile takeovers, but I think one day in two or three years they’ll come to us,” he said.

The yen, which reached a postwar high of 75.35 on Oct. 31, is boosting the purchasing power of Japanese companies looking to expand globally. Caterpillar Inc., Komatsu’s larger U.S. rival, last month offered as much as HK$6.89 billion ($884 million) to buy China’s ERA Mining Machinery Ltd. to expand sales in China, following its $8.8 billion acquisition of Bucyrus International Inc. in July.

Komatsu is seeking to fend off competition from rivals including China’s Sany Heavy Industry Co. by developing value- added products and services. Komatsu installs GPS devices on its machines, enabling workers in Tokyo to monitor how the machines are used at construction sites and to advise customers on fuel- saving strategies and parts replacement needs. It has sold 1,100 hybrid excavators that use less fuel than conventional models in Japan and China since their debut in 2008.

Driverless Trucks

In 1996, Komatsu bought Moduler Mining Systems Inc., a U.S. maker of electronic systems that increase mine efficiency, helping it develop driverless mining trucks. Komatsu last month won an order from Rio Tinto Group to supply at least 150 driverless trucks to Australia’s Pilbara iron ore mines by 2015.

Komatsu closed up 7.2 percent at 2,032 yen in Tokyo, the biggest gain since May 2009. The stock has shed 17 percent of its value since the beginning of the year.

Noji expects workers won’t be able to continue open-pit copper mining in 10 to 20 years even as demand for the metal rises. Komatsu is seeking to add underground mining equipment to its products in anticipation of more underground mining.

Copper prices have more than tripled over the past decade. The metal for three-month delivery on the London Metal Exchange fell 0.6 percent to $7,835 a metric ton at 1:07 p.m. in Tokyo after reaching a record of $10,190 in February.

Raising Prices

Komatsu plans to raise prices in China, its largest market, by about 2 percent next year even as the government’s policy tightening slashed demand for construction machinery, Noji said. Sales of excavators fell by 50 to 60 percent from levels last year in November and will decline at a similar pace through December at least, Noji said.

“It’s not easy to raise product prices, but we were able to maintain our profit margins,” Noji said. “Regardless of whether our market share declines, Komatsu is responsible for raising prices to create a healthy market as a leading company in China.”

The timing of a recovery in China depends on how the government contends with inflation, he said. Komatsu forecast last month global demand for construction equipment will rise 6 percent in the year ending March 2012, as sales in Asia excluding China and in North America help cover falling demand in China.

--With assistance by Jae Hur in Tokyo. Editors: Aaron Sheldrick, Rebecca Keenan

To contact the reporter on this story: Masumi Suga in Tokyo at msuga@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Andrew Hobbs in Sydney at ahobbs4@bloomberg.net.


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