Corporative strategy in a global industry joy global faces Caterpillar's acquisition of bucyrus

Abstract

Mike Sutherlin, CEO of Joy Global Inc. (“JOY”), a global mining equipment manufacturer, was having lunch, in downtown Milwaukee, Wisconsin, with his wife, in November of 2010 when his cell phone began ringing. He hesitated answering, but recognizing the name, picked up to hear surprising news. It was a courtesy call from a friend at Caterpillar Inc. (“CAT”), the $85 Billion USD juggernaut, letting him know that CAT had just purchased JOY’s cross town rival, Bucyrus International, Inc. (“BI”), for $8.8B USD. JOY and BI were 2 Milwaukee, Wisconsin based mining equipment manufacturers who competed head to head on a worldwide stage. Evenly matched, with a market cap around $7B USD each, these two companies had spared in the surface and underground mining equipment market for heavy duty extraction mining equipment for over a hundred years since their founding in 1888 and 1889, respectively. All of a sudden, with this acquisition, what had always been a cross town rivalry would take on new proportions. CAT was the undisputed world wide heavy machinery giant with a market cap 10 times the size of JOY. Regarding the acquisition, Sutherlin comments, “Instead of a smaller competition across town all of a sudden this changed the world for us.” CAT brought to the table revenues which were 12 times larger than JOY, a global brand that stood for reliable heavy machinery, exceptional service through its army of worldwide distributors, and the ability to win deals by financing equipment through CAT financial. Sutherlin´s team had just put the finishing touches on their strategic plan for 2010. The exercise had reaffirmed some of JOY´s strategies, such as a continued commitment to focus solely in the mining equipment industry (versus including construction and farming equipment markets like CAT), a direct sales and service go to market model (versus third party distributors like CAT), and a focus on premium products with premium pricing (versus wining deals on price like BI). The plan also called for some changes such as moving beyond the dependence on a single product for their surface mining division and a move beyond coal specific products for its underground division. Would this strategy need to be revised? Would the plan withstand this new challenge? Sutherlin knew it was time to get his leadership team together, circle the wagons, and figure out, what, if anything, JOY could do to respond to this new competitive threat from CAT.