UPDATE: Volvo Acquires Ingersoll-Rand's Road Construction Equipment Operations

Ingersoll-Rand sells its Pennsylvania business for $1.3 billion.

(Updates story with comments from Prudential Securities.)

Sweden's AB Volvo announced announced Tuesday its acquisition of Ingersoll-Rand's road development division for $1.3 billion.

The road development business, headquartered in Shippensburg, PA, manufactures heavy equipment for road construction and soil compaction. It had revenues of $864 million in 2006 and has approximately 2,100 employees at manufacturing facilities in the U.S., Germany, India and China.

According to Volvo CEO Leif Johansson, the acquisition will allow Volvo to continue the expansion of its global construction equipment operations, including strengthening its position in the North American materials handling equipment market.

Volvo's acquisition also includes 20 dealerships in North America and distribution companies in Europe and Russia. The acquisition is expected to close during the second quarter of 2007.

For Ingersoll-Rand, the sale furthers the company's commitment to changes in its business platform by moving away from capital-intensive machinery businesses, but the plan would be incomplete without further divestitures of its other machinery operations, according to Prudential Securities analyst Igor Maryasis.

The sale of the road development business could hinder Ingersoll-Rand's ability to develop cross-sales in its adjacent product lines such as skid steers, backhoes and dozers, and further complicate the company's already challenged competitive position in the construction equipment market, added Maryasis.

Ingersoll-Rand's road development operations seemed to be the most promising global infrastructure among the company's businesses. The road development business is part of Ingersoll-Rand's Construction Technologies group, which was one of the company's fastest growing operations in 2006, with 45 percent of revenues coming from overseas and over 20 percent from emerging markets, Maryasis said.

Ingersoll-Rand is a diversified industrial company that provides products for a range of industries from transportation and manufacturing to food retailing, construction and agriculture.