Japan-based IHI executed an agreement to sell the commercial engine-focused small engine business of IHI’s wholly-owned subsidiary IHI Agri-Tech (IAT) to U.S.-based Caterpillar.

The closing of the transaction is expected to take place at the end of December 2018. Furthermore, IAT’s equity shares in its engine joint ventures with Caterpillar in England, the U.S. and China have been sold to Caterpillar, effective immediately.

In recent years, emissions regulations on diesel engines have tightened worldwide, and in addition to increased competition in the diesel engine industry, development costs and the burden of securing resources for engines that comply with next-generation emissions regulations are increasing year by year. In light of these circumstances, IHI and IAT received an offer for the sale of IAT’s small engine business from Caterpillar, the parent company of England-based Perkins Engines and its affiliates, which manufacture and sell engines overseas and are IAT’s joint venture partners, and IHI and IAT have agreed to sell the business to Caterpillar.

IHI noted Caterpillar is a world-leading manufacturer of construction and mining equipment and also has a global presence manufacturing and selling diesel, natural gas and other engines. With this transaction, Caterpillar is able to combine its global resources and its know-how from medium and large engines with IAT’s small engine know-how to create a broad product line that can provide greater value to both companies’ customers.

Following the close of the transaction, the manufacture, sale and after-service of Shibaura engines that are currently performed by IAT will be taken over by a new-formed subsidiary of Caterpillar – Perkins Japan. This newly-formed subsidiary will be responsible for the continued manufacture, sale and servicing of products for customers of the small engine business.

IAT was established in October 2017 and is the combined company of IHI Shibaura Machinery Corporation, which focused on small engines and turf-care products, and IHI Star, which focused on agricultural machinery.

Following the close of the transaction, IAT will focus on agricultural machinery and turf-care products.