Volvo Bolsters Construction Equipment Business

• August
• 25

12:28 am Construction Equipment

Volvo, the world’s second- largest truck maker, agreed to buy Ingersoll Rand’s road building equipment unit for $1.3 billion in cash to become the world’s third-largest maker of construction equipment.

“What we are adding here is compactors, pavers and milling equipment, which makes us a full-range provider,” the Volvo chief executive, Leif Johansson, said during a news conference in Stockholm. “We are now in a clear No. 3 position.”

The vehicle maker, based in Gothenburg, Sweden, is trying to bolster its construction equipment division to better compete with Caterpillar and Komatsu, the two largest makers of heavy equipment. Last month, Volvo announced that the Chinese government had approved its purchase of a 70 percent stake in Shandong Lingong Construction Machinery. This month, the company said that it would buy Nissan Diesel Motor for 7.5 billion kronor, or $1.1 billion.

Among the world’s truck makers, only DaimlerChrysler is larger than Volvo.

The purchase of the Ingersoll Rand unit “will improve their product range, of course, but it does not improve their geographical mix really,” said Anders Bruzelius, an analyst with Swedbank in Stockholm. “Volvo today is heavily dependent on North America and Europe. The price is also high.”

Volvo’s construction equipment division, its second-biggest, after trucks, posted a 17 percent increase in 2006 sales to 40.6 billion kronor and a 41 percent surge in operating profit to 3.89 billion kronor.

The Ingersoll Rand unit reported revenue last year of $864 million. It has 2,100 employees and has manufacturing units in the United States, Germany, India and China.

The purchase will allow the Volvo division, which currently makes dump trucks, loaders, excavators and graders, to add heavy road-construction equipment used for compacting soil and paving roads to its product line.

Volvo, which has held on-and-off talks with Ingersoll Rand since 1998, said it completed the agreement Monday night. Volvo said it would gain North American dealerships as well as European distribution networks from the Ingersoll Rand unit, which is based in Shippensburg, Pennsylvania.

The worldwide market for road construction equipment is worth $4 billion annually and will expand “significantly” as countries upgrade infrastructure in the coming years, Volvo said.

Sharing the two companies’ sales and distribution networks will probably result in annual savings of 600 million kronor within five years, Volvo said. The companies said they expected to complete the transaction in the second quarter.