To take advantage of the global boom in mining, heavy-equipment maker Caterpillar on Monday said it would buy mining giant Bucyrus International for $7.6 billion. Caterpillar will pay $92 a share, which is a 32-percent premium to Friday's closing price and an all-time high for the stock.
In the wake of this deal, what are the lessons of Bucyrus ?
First, Cramer told viewers to rethink how they view industries, including and especially mining, because situations can change. Until 2005, the mining and mineral-extraction business was volatile. It was so boom-or-bust that when the economy slowed down, Bucyrus couldn't handle its debt burden and, in 1994, had to file for bankruptcy. But the company later reemerged as Bucyrus International and since then CEO Tim Sullivan has said his industry is in secular growth mode, meaning it’s no longer completely reliant on a strong economy.
Regardless, investors continue to view the mining industry as fickle, even though Cramer said it's now anything but. Bucyrus can't keep up with the business it's getting from developing nations and their demand for coal. It also services 34 cities in China, each of which has a population of 6 million or more. The People's Republic has a coal-based energy system and opens a new coal plant almost every week. Despite this kind of demand, Bucyrus has struggled to convince investors that a repeat of the 1994 bust just won't happen.
Second, it's important to recognize that this trend is secular, not cyclical. In other words, it's not reliant on the world's economies and not likely to go away anytime soon. Caterpillar understood this and, having viewed Bucyrus as a threat, acquired the company as a defensive move.
Finally, there's the lesson of leadership. Cramer said Bucyrus’ Sullivan made smart moves that have brought massive profits. Since Cramer recommended the stock on Dec. 9, 2008, it's up 409 percent.
"Congratulations, Tim, for doing what so few do," said Cramer. "Resurrect a company, grow it and then sell it for a huge premium, re-affirming why we own stocks as the best way to augment our paychecks and the net worth of the ‘Mad Money’ audience."
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