Caterpillar announced it is acquiring Electro-Motive Diesel for $820 Million. The company, which has revenues of about $1.8 billion is currently owned by two private equity firms who acquired it from General Motors in 2005 for around $200 million (read my other post about PE divesting before tax rates increase). Caterpillar already owns a railcar maintenance and repair business and this puts it into the manufacturing business (backward integration).
“This acquisition represents the latest step in our strategic plan to aggressively grow our presence in the global rail industry” stated Doug Oberhelman, CEO-elect of Caterpillar. They are betting on the US economy coming back with the demand for railcars to grow, as well as continued growth in emerging markets like India and China. It seems to me Caterpillar is being market-driven and buying when the market it down (buy low/sell high). Although GE is their major competitor in this space, I predict Caterpillar will do well with this investment.