Caterpillar Sells Stake In Logistics Arm To Become Lean Mean Digging Machine

In a move to consolidate its core business, Caterpillar is selling a 65% stake in its logistics business to a private equity firm Platinum Equity. Caterpillar will receive $750 million in equity and debt for the business which managed warehouses and distribution operations for other companies. It is an extremely small part of Caterpillar and has in recent years become more focused on handling operations for other companies compared to its parent company. Thus, from a business perspective, Caterpillar realized that it can strengthen its core by using the money from selling this division to fund its more rapidly growing construction and mining businesses. ^[1]

We currently have a Trefis price estimate of $108 for Caterpillar’s Stock, which is slightly below the current market price.

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From an investor’s perspective, this is a positive move signifying the faith of the company in its primary business, which is seeing robust demand globally and in particular in emerging markets like China. Through its minority stake, the company will still have access to all the strategic advantages provided by Caterpillar Logistics. It will continue to serve as a low cost provider for its equipment and provide access to superior supply chain solutions. However, this might be a disruptive move in the supply chain industry where Cat Logistics will now become a serious player. The new owners will increase the commercial focus of the firm in search for higher profits.

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1. The morning leverage platinum plows ahead with 750m caterpillar logistics deal, Wall Street Journal, 11 May – 2012 [↩]