Heavy equipment manufacturer Caterpillar is buying Electro-Motive Diesel, one of North America’s two major builders of line-haul freight locomotives, from its private equity fund owners for $820 million in cash.
The Peoria, Ill.-based builder said its Progress Rail Services unit signed a definitive agreement to purchase EMD from Berkshire Partners and Greenbriar Equity Group, and that EMD will become a subsidiary of Progress Rail. Berkshire Partners is not related to Warren Buffett’s Berkshire Hathaway, which owns BNSF Railway.
Freight railroads on this continent usually buy their largest locomotives from GE Transportation or from EMD, although they may purchase smaller yard engines from several other suppliers as well. Both GE and EMD also serve the transit industries, and the U.S. policy push to expand passenger rail service is ramping up that sector’s equipment needs.
“This acquisition represents the latest step in our strategic plan to aggressively grow our presence in the global rail industry,” said Caterpillar Vice Chairman and CEO-Elect Doug Oberhelman. EMD had $1.8 billion in sales in 2009, and boasts “the largest installed base of diesel-electric locomotives in the world.”
Including this deal and the 2006 acquisition of Progress Rail, Oberhelman said Caterpillar has invested about $2 billion to build its rail and transit businesses. “Rail has proven to be a highly efficient and sustainable method for moving freight and people, and we see a positive long-term future for the continued growth of the rail industry,” he said.
The deal is expected to close by the end of this year, pending regulatory
approvals. Caterpillar said EMD’s headquarters will remain in LaGrange, Ill., where John Hamilton will remain the unit’s president and CEO, reporting to Progress Rail CEO Billy Ainsworth.
Progress Rail offers rail and transit products and services, including locomotive upgrade and repair, railcar remanufacturing, track work, signal design and installation, maintenance of way equipment, parts reclamation and recycling.
Last month the Caterpillar subsidiary also said it bought FCM Rail, a Fenton, Mich., lesser of track maintenance equipment and warehousing.
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