AB Volvo last week agreed to acquire the road construction equipment division of Hamilton, Bermuda-based Ingersoll-Rand Co. for about $1.3 billion in cash. The sale, which is subject to government regulatory approvals and other customary closing conditions, is targeted to close in the second quarter of 2007.
The Road Development business unit manufactures and sells asphalt paving equipment, compaction equipment, milling machines, and construction-related material handling equipment. In 2006 the division generated net revenues of approximately $850 million, which included inter-company revenues of approximately $150 million. The sale includes manufacturing facilities in Letterkenny and Shippensburg, Pa; Hameln, Germany; Wuxi, China; and Bangalore, India; as well as 20 distribution and service facilities in the United States. The business includes approximately 2,000 people worldwide.
â€śThe road development business has been a strong contributor to Ingersoll Randâ€™s success for several decades and remains an industry leader with dedicated and talented employees,â€ť said Herbert Henkel, chairman, president and CEO. â€śHowever, the businessâ€™ markets and products do not fit within our transformed portfolio of diversified industrial businesses. I am confident that road development will benefit by joining a company sharing similar competencies and offering complementary products and services. We are pleased to have entered into this agreement with Volvo, which represents a strong strategic buyer for the business.
â€śThe sale of the Road Development business reflects our strategy to transition away from capital-intense, heavy-machinery businesses and improves the companyâ€™s efforts to consistently achieve aggressive financial objectives over the long term. To that end, we will use the proceeds to make acquisitions and fund innovation and new product development efforts that will generate strong revenue and earnings growth. In addition, we will continue to implement our previously authorized share repurchase program.â€ť
Volvo said it expects the acquisition to save it about 600 million Swedish kronor (about U.S. $85.2 million) in the next five years.
â€śThe acquisition gives Volvo Construction Equipment a world-leading position within heavy road construction equipment,â€ť said Volvo CEO Leif Johansson. Volvo estimates the global market for road construction equipment is worth about $4 billion a year and will probably grow as governments spend more money on infrastructure.
The acquisition includes 20 dealerships in North America and distribution companies in Europe and Russia, which will leverage Volvo CEâ€™s sales of compact equipment, primarily in North America.
â€śStrategically, the acquisition of Ingersoll Rand Road Development fits exceptionally well with Volvoâ€™s current operations within motor graders and positions Volvo as a full-range manufacturer of heavy road construction equipment,â€ť said Tony Helsham, president of Volvo Construction Equipment. â€śGeographically, the purchase also fits Volvo CE very well and provides attractive growth possibilities by capitalizing on the common dealer network in North America, Europe and Asia.â€ť
Volvo also owns Renault trucks in Europe and American Mack Trucks in the United States, as well as a 19 percent share of Nissan Diesel.