11 December 1997

Heavy equipment maker Caterpillar Inc. succeeded in its long-rumored quest to purchase the assets of Perkins Engines, LucasVarity Plc diesel engine subsidiary, with a $1.325 billion deal announced on Thursday.

Caterpillar said the addition of Perkins to Caterpillar’s existing engine business will create a global full-line producer of reciprocating and turbine engines. “The combination of Caterpillar and Perkins enhances our strategic position in the worldwide engine business, ensures our ability to leverage critical engine technologies for leadership in the future and allows us to compete with other full-line producers,” said Caterpillar Chairman and Chief Executive Officer Donald V. Fites. “Caterpillar will use its financial, technical and logistical strengths and resources to accelerate Perkins' product growth through new offerings, new applications and new technology. The excellent strategic fit between our companies makes this a natural extension of our strategy to be a global leader—and build value for our shareholders—through select investments in or near our core businesses.”

“The on-highway and off-highway sectors of the diesel engine business are converging, driven largely by progressive emissions legislation,” said Victor A. Rice, LucasVarity's chief executive. “Perkins has a limited on-highway presence, whereas Caterpillar is a full-line engine producer and is committed to developing small- to medium-sized diesel engines - the size range produced by Perkins. Caterpillar is exceptionally well-placed to take Perkins forward as a highly successful engine producer well into the 21st Century.”

The assets Caterpillar will acquire under the terms of the agreement consist primarily of Perkins’ facilities and operations in Peterborough, Stafford, and Shrewsbury, England, and its stake in several international alliances. The transaction is effective 1 February 1998, pending approval of the sale by LucasVarity’s shareholders and other necessary approvals.

“Perkins’ product line of 200 hp and smaller engines is an outstanding complement to Caterpillar’s engine business,” said Richard L. Thompson, Caterpillar group president. “The addition of those engines will strengthen our offerings for sale to others and for powering our own equipment. As a long-time customer of Perkins’ engines, we know them well.” Thompson noted that Caterpillar is Perkins’ largest customer when sales to F.G. Wilson (which Caterpillar owns jointly with Emerson Electric) are included. In addition, Caterpillar’s logistics division provides parts distribution for Perkins. “I’m extremely pleased with this combination, which will bring together complementary technology and engine business expertise to enable Perkins and Caterpillar to serve customers and grow in ways neither of us could otherwise,” said Michael J. Baunton, managing director for Perkins Engines. “Caterpillar gives Perkins access to the financial, technical and logistical strengths and resources it needs to continue growing and improving.” Caterpillar engine sales account for about 25% of total company sales, which totaled over $16.5 billion in 1996.

Source: Reuters