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Caterpillar Announces $7.5 Billion Share Buyback

Shares of Caterpillar rose Thursday after the company announced plans for a stock buyback.

Caterpillar plans a new $7.5 billion share buyback over the next five years, citing its confidence in long-term growth prospects and cash-flow generation.

The Peoria, Ill.-based company said its board of directors authorized the repurchase program, which will start when the current $6.4 billion buyback program is completed in the next few months, a year and a half ahead of schedule.

The company expects to have 640 million shares outstanding at the end of the new buyback program.

Caterpillar said its priorities for the use of cash remain capital expenditures, acquisitions, funding pension programs and raising dividends, with the rest devoted to buybacks.

Separately, the company also said Thursday it's in talks to raise its stake in a construction machinery venture with Japan's Mitsubishi Heavy Industries.

Caterpillar seeks to raise its stake in the 50-50 construction machinery joint venture to about two-thirds.

Mitsubishi Heavy spokesman Hideo Ikuno said the sale of part of its stake in the joint venture, Shin Caterpillar Mitsubishi, was in line with a strategy of shifting resources to core businesses such as power systems, aerospace and turbo chargers. Construction machinery is no longer considered a core operation.

Late last year, Caterpillar said it expected sales in China to quadruple as a percentage of its global sales by 2010 as the country rapidly builds more ports, energy projects and roads, and moved its Asia Pacific Operations headquarters to Beijing from Tokyo.

Caterpillar Asia Pacific Operations spokesman Jim Dugan said Japan represents a mature market for his company where it makes high-quality products, and China is a market with a large growth potential.

"It (the announcement) is really a sign of our recognition of the importance of the Japanese market to Caterpillar and our commitment to that market and our customers in Japan," he said.

Goldman Sachs analyst Kunio Sakaida wrote in a note to clients that he sees the news as positive for Mitsubishi's stock price as it would enable the company to concentrate its resources on diesel engines and turbo chargers, the outlook for which is good.

The venture, established in 1963, produces and sells hydraulic excavators, wheel loaders and bulldozers. It booked sales of 386 billion yen ($3.2 billion) in the business year ended March 2006.

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