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In a bid to transform from just engine and generator seller to become a provider of complete marine propulsion package systems, Caterpillar Inc. (CAT - Analyst Report) is acquiring Johan Walter Berg AB, a Sweden-based leading manufacturer of propulsion systems and marine controls for ships.

The acquisition includes Johan Walter Berg AB flagship brand - Berg Propulsion. It is one of the world’s leading designers and producers of controllable pitch propellers for the shipping industry. Berg Propulsion started to build propellers in 1929. It currently delivers fully customized main propellers, azimuth thrusters, transverse thrusters and manoeuvre systems, as well as 24-hour service. Its proprietary systems are used in maritime applications that call for precise maneuvering and positioning.

Currently Berg Propulsion operates from its production facilities in Sweden and Singapore and has its sales and service offices located in Shanghai, Guangzhou, Istanbul, Dubai, Singapore, Bremen, San Sebastian, Rio De Janeiro, Busan, Genoa, Mumbai, Namibia and the Swedish west coast.

The deal is expected to close in the third quarter of 2013, subject to final regulatory approvals. On completion, Berg will be integrated into Caterpillar’s Marine and Petroleum Power Division. Berg’s thrusters, propellers and control systems will be rebranded as Caterpillar.

Caterpillar’s Marine and Petroleum Power Division supplies diesel and natural gas engines for the generation, control and supply of mechanical and electric power for the marine and petroleum industries. The division had a good run in the first half of 2012 with an average sales growth of 24% and registering maximum monthly sales growth of 29% in Jun 2012. The growth however trailed in the second half, dipping to the single digits. In 2013, sales growth was flat in January and then declined 8% in February, 1% in March and 6% in April. Lately; the division witnessed a recovery in May with a 1% growth.

This acquisition will provide the much-needed boost to the performance of Caterpillar’s Marine and Petroleum Power Division as Berg is one of the most highly regarded brands in the marine industry. With the acquisition, Caterpillar will now be able to provide support to marine operators worldwide for a complete, optimized propulsion package.

Furthermore, Caterpillar will benefit from the recovery in the U.S. construction sector, expected benefits from the resolution of its issues related to ERA buy, inventory adjustments nearing completion and resumption of stock repurchases. However, trimmed guidance, decline in sales growth, declining backlog and negative impact of the European debt crisis remain concerns.

Caterpillar currently retains a Zacks Rank #3 (Hold). Other stocks in the industrial products sector with a favorable Zacks Rank are Kubota Corporation , with a Zacks Rank #1 (Strong Buy), while H&E Equipment Services Inc. (HEES - Snapshot Report) and Alamo Group, Inc. (ALG - Snapshot Report) carry a Zacks Rank #2 (Buy).

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