Clark Equipment Co., a diversified, Michigan-based heavy equipment maker, and AB Volvo, the big Swedish conglomerate, have agreed to merge their construction-equipment subsidiaries into a new joint-venture company, the two firms said Wednesday. Terms were not disclosed.
Analysts said the move is part of an ongoing consolidation of the world's ailing heavy equipment industry. They added that the decision to form the joint venture represents an attempt by Volvo and Clark to compete more effectively with Caterpillar Tractor Co. and Japan's Komatsu Ltd., the two giants that now dominate the market for earth-moving equipment.
Buchanan, Mich.-based Clark said the joint venture, formed by the merger of its Clark Michigan unit with Volvo's Volvo BM division, should become the world's largest producer of off-highway trucks and the world's third-largest maker of front-end loaders for the construction industry.
Clark and Volvo directors Wednesday approved a letter of intent to form the new company, which will be half-owned by each parent firm and will be incorporated in the Netherlands, Clark said in a statement.
A Clark spokeswoman said the joint venture had no immediate plans to close any of the equipment-manufacturing facilities of the two firms, but analysts said that they expect a quick consolidation of the joint venture's existing capacity.
With combined sales expected to reach $800 million this year, the joint venture will employ about 7,500 workers worldwide.
Besides a North Carolina facility, Clark Michigan has plants in France, Canada and Brazil, while all of Volvo's construction-equipment operations are in Sweden.
Officials said in a statement that the joint venture with Volvo should give Clark greater access to overseas markets and Volvo a greater foothold in the United States.
"The formation of this joint venture represents another major step in the strategy to create a new, viable worldwide construction and mining machinery company," Clark Chairman James Rinehart said.
But analysts said Clark, which has undergone a dramatic cost-cutting drive over the last two years, sees its new partnership with Volvo as a way to reduce its exposure in the recession-ridden construction-equipment field without pulling out entirely.
"This is a very mature business with worldwide competition, and they didn't have the resources to continue to compete on their own," said Stephen Colbert, a machinery analyst with the investment firm of Prudential-Bache Securities Inc. in San Francisco.
"Clark has been a small player in the industry and . . . needed to compete overseas" in order to expand its sales base, Colbert said. "This is also a way for them to reduce the capital they have to put into construction equipment."