Western Railroad Discussion > EMD SOLD to Caterpillar

Caterpillar to buy maker of railroad locomotives

BOSTON (Reuters) - Caterpillar Inc (CAT.N) agreed to buy a U.S. maker of railroad locomotives on Tuesday for $820 million in cash, expanding its rail business from service into new engine manufacturing.

Deals

The world's largest maker of heavy equipment said it was buying Electro-Motive Diesel, which last year generated $1.8 billion in revenue, from private equity firms Berkshire Partners LLC and Greenbriar Equity Group LLC.

The new business will be a part of Caterpillar's Progress Rail operation, which will now compete more directly with General Electric Co (GE.N), another major U.S. maker of locomotives.

The deal is expected to close by the year's end.

Demand for railroad locomotives has been weak of late, as the recession lowered demand for transportation of all sorts of bulk commodities.

However, U.S. railroads including No. 1 Union Pacific (UNP.N) in recent months have begun to report rebounding profits as volumes begin to grow after a two-year slump. Union Pacific last month said it aimed to boost its capital spending budget this year to $2.6 billion, planning to spend that on intermodal equipment, which enables trains to carry equipment that can also travel by ship and truck.


PEORIA, Ill. (TheStreet) -- Caterpillar(CAT) agreed to acquire a locomotive manufacturer for $820 million in cash from a pair of private-equity investors as the world's largest heavy-equipment maker looks to beef up its railroad business.
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Caterpillar Incorporated| CAT DOWNCaterpillar's target this time is Electro-Motive Diesel, which, as its name would suggest, specializes in building electric-diesel locomotives. The company had revenue of $1.8 billion in 2009, according to Caterpillar, which announced the purchase Tuesday in a filing with the Securities and Exchange Commission.
The deal, which requires regulatory approval, isn't expected to close until the end of 2010.
The sellers, Berkshire Partners and Greenbriar Equity Group, acquired EMD from General Motors in 2005 for an undisclosed sum.
Since 2006, Caterpillar has invested $2 billion in the rail industry, including its purchase of Progress Rail. Like Warren Buffett, whose Berkshire Hathaway(BRK-B) holding company closed its acquisition of the freight line Burlington Northern Santa Fe earlier this year, Caterpillar clearly views railroads as a smart play.
"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," said Caterpillar's CEO-elect, Doug Oberhelm, in the press release.

Wow, Progress Rail is taking over! Seems like they're buying everything lately, now EMD. I wonder what that means for the future of Prime Movers in EMD's.. Will they be Caterpillar in the future? Time will tell...

Its a good fit for both CAT and EMD.

I think it's going to be interesting to see what CAT does
with the prime movers on new EMD products. Also, are they
going to agressively compete with GE in the warranty area?
This is one of the big advantages GE has, superior warranty
and service contracts, plus, higher capacity to produce units
quicker. This may have a very major impact on future locomotive
construction.

Nick Tharalson,
Marion, IA

This always seemed like itd be a natural match. Hopefully they can breathe some new life into the company.

BTW didnt Santa Fe repower several SD45-2s with caterpillar prime movers back in the 80s? How did those perform?

I remember the Santa fe SD-45-2 we had with a 3612 CAT engine. I think it was the 5855. I loved it because it was unique & sounded wonderful. But, that was back in the late 80's, when that engine design was still fairly new. Now, 20+ years later, I'm wondering if the 3600 series has been refined, & fine tuned, or is it now rather dated, and nearing the end of it's developement cycle, ready for replacement by something greener & modernized? The 3500 series are great for smaller units, but you need the 3600's for real HP.

BrooklynHauler Wrote:
-------------------------------------------------------
> Wow, Progress Rail is taking over! Seems like
> they're buying everything lately, now EMD. I
> wonder what that means for the future of Prime
> Movers in EMD's.. Will they be Caterpillar in the
> future? Time will tell...

You are right, time will tell. My guess is that'll they will stay with EMD designed prime movers in the high horsepower locomotives because the railroads will be reluctant to change from what they are familiar with. The history of using different prime movers in locomotives, including CAT, hasn't been good and railroads have to be conservative.

The factors that could change this are the pollution regs and fuel efficiency. CAT may have a lot more research and development for their prime movers.

Well this BN locomotive seemed to be a success, the BN 6330 was a CAT rebuild. I thought it sound cool, almost sounded like a ALCO. I hope CAT & EMD will be a success.

---

Having worked with the local Cat dealer in San Diego back in the 1980s, I followed the Cat re-engined EMDs with interest. There were Pros and Cons to these units!!
One advantage to the Cat 3612/3616 engines used in these re-powers, the same or higher horsepower rating as the EMD V20s, but with 8/4 less cylinders, and less fuel consumption.
EMD 16-567 and 16-645 engines weigh in between 28,000-32,000 pounds, using blocks primarily fabricated from flat steel pieces welded together, whereas CAT blocks are one piece castings with a 3616 engine weighing around 50,000 pounds! (Weight is for complete engine)
Physically the CAT engines are much larger than EMD engines, as an example, when you open an engine room door, the gap between the inside of the hood and engine is about 1 foot with the EMD engines, with the CAT engine there is about a 1 inch gap between the hood and engine!!
I don't know what reasons ATSF or CNW or BN had for discontinuing the use of CAT engines in their locomotives.
As an aside, the Power Division of the CAT dealer I worked for was setting up a Cat 3612 Genset, they had to fabricate the base that the engine/generator would be mounted on, using some pretty stout H beams and other structural steel parts. The generator, water cooled Kato, weighed more than the engine and frame together!!
The first 6 times they fired this engine up to test it, the San Diego Fire Dept. would show up thinking the facility was on fire. After the 6th trip, the company was informed to call SDFD ahead of time before starting this engine!!!
This Genset was being set up for a Navy ship being built at the National Steel and Shipbuilding Company(NASSCO) yard on San Diego Bay. NASSCO was building a series of Fast Supply Ships for the Navy, 5 of these Gensets were to be built for each ship. Totally electric powered ships!
Mike



Edited 1 time(s). Last edit at 06/01/10 12:03 by 2720.

Martin Caterpillar in Topeka maintained the 5855 at Forbes Field. If I remember right, it had a type of experimental injectors, but the tips kept burning off and breaking the fins on the turbos, the engine had one turbo per bank of cylinders. The injectors were supposed to atomize a heavier, cheaper fuel oil. And at the time, Cat wanted Santa Fe to use their dealers & parts network to do the work on a fleet, and Santa Fe wanted to do their own work. There was an issue with the type of lube oil used. Cat had their own specification, Santa Fe wanted it to use the same as the rest of the fleet used. It was a cold start engine, that could use anti-freeze. But, then so is GE, but to avoid confusion, as a fail safe & to avoid the expense, they use plain, treated water, same as EMD. During the last few time I saw it on the property, the round house guys said it was always low on coolant, and they didn't know where it was going. But I'm sure in the last 20 years or so, they have got these bugs worked out.

Big Question? Are they going to change the name from EMD to CAT over time?

lloydnet Wrote:
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> Big Question? Are they going to change the name
> from EMD to CAT over time?

Keep an eye on the name Progress Rail, it has only a small name recognition in the rail industry, it would likely go first. If Caterpillar renames Progress Rail to Caterpillar Rail, then EMD might follow, if not then Cat recognizes that the EMD name and rep is valuable and will continue to use it.

It may not be as good of a match as it first looks to be.

---

End of one era .... and the beginning of a new one. This is much better for EMD. With Cat's supplier base, distribution channels, access to R&D and capital, EMD will have a much better time of it competing with GE than they have being owned and bled dry by a private equity firm. I believe one of the news stories said they would keep the EMD name as it has higher recognition in the rail industry.

Mike

I wouldn't say "bled dry." This private equity firm has put much more money into EMD than GM ever did during its final years of ownership. It looks as if Greenbrier and Berkshire did just what they intended: take over a company that was on the way out, put it back on its feet, and sell it for a nice profit. It's better for EMD and for the rail industry than having EMD become another Pontiac, Oldsmobile, or Saturn.

Cats worldwide reach will serve them and EMD in the loco biz, making support and distribution of their products a snap.

The sheer number of undercapitalized state railways aroud the world that presently/will need locomotive needs fulfilled is an enormous oppurtunity for them to run with. Cat reliability combined with EMD toughness would be a winner in a heavy-haul business pretty much ignored by everyone else.

Cats reputation precedes them, if they can back it up on the rail side it will be a winner.

kushtaka Wrote:
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> It may not be as good of a match as it first looks
> to be.

True, but think about how good the plows will be once they get replaced with D-9 bulldozer blades!

This deal allows CAT more product offerings for non loctomotive applications, like tow boats and mining trucks. The locomotive propulsion technology also allows CAT to offer diesel electric drive in some of the bigger trucks and wheel loaders.

Back in the late 80's when they re-engined the Santa Fe 5855, they had high hopes of hooking up with MK and getting a piece of the market. Besides the mechanicaal problems they had with that, CAT wase having labor problems, and were having a hard time supplying parts. That went on for months, which didn't make a very good impression.

The rumor has been going around for several months supposedly emanating from a Principal's meeting where
involved dealers were told of the idea. The concept was that the dealers would be directly involved in local support
in certain regions giving immediate assistance where required. Seemed like a decent enough story but you hate
to start rumors and look "stoopid" months later. We build CAT's dealer test stands for their hydraulic equipment
and we have gotten a couple odd requests of late so possibly at least part of the engine use for EMD will come
out of Peoria. All in all it seems like a very good fit and since I'm pissed at GE at the moment over sending one
of our major projects off to China to be built I wish C-EMD the best of luck and go kick their ass!!!!!