UPDATE 5-Joy Global eyes oil market with $1.1 bln Rowan unit buy

* Cash deal to add to Joy Global earnings in fiscal 2011

* Rowan sees after-tax proceeds of $875 mln

* Rowan plans to expand into deepwater drilling

* Rowan shares trim gains, up 0.4 pct; Joy Global up 2 pct (Adds comments from conference call, links)

By Thyagaraju Adinarayan and A. Ananthalakshmi

BANGALORE, May 16 (Reuters) - Mining equipment maker Joy Global is to buy Rowan Cos Inc's drilling and mining gear unit for $1.1 billion in cash, as it looks to offset stiff competition in its main market by entering the lucrative oil and gas drilling business.

Rising oil prices CLc1 and the rush for advanced gear to meet tougher regulations following last year's Gulf of Mexico oil spill are boosting demand for drilling equipment makers.

The deal for LeTourneau Technologies Inc -- which some analysts said is expensive -- could make Rowan more of a takeover candidate as it sheds businesses to become a pure-play drilling contractor. [ID:nSGE68D0KQ]

LeTourneau, which accounts for 30 percent of Rowan's annual revenue, designs jack-up drilling rigs and makes primary components for them. It also makes mining equipment such as large-wheel loaders.

Joy Global's expansion into a new market follows Caterpillar's $7.6 billion bid for main rival Bucyrus -- a deal that would leave Joy Global as the last standalone U.S.-based maker of mining equipment.

"There was certainly a lot of pressure to do something in response to the Caterpillar-Bucyrus deal. That deal probably accelerated Joy Global's plans ," said BB&T Capital Markets analyst Schon Williams.

That probably inflated the price Joy Global is paying, said Dahlman Rose & Co analyst Omar Nokta, noting the consensus value on LeTourneau, which has been on the market for three years, was $600-$800 million.

LeTorneau had revenue of $815 million last year. Joy Global's 2010 revenue was $3.4 billion.

Rowan had planned to run a dual-track process for LeTorneau -- considering a sale, while setting the unit up for an initial public offering. But Joy Global preempted that process with its bid, Rowan CEO Matt Ralls said on a conference call.

Shares of Rowan rose as much as 5 percent to a 2-week high of $40 on the New York Stock Exchange on Monday, but last traded up just 0.4 percent. Joy Global shares rose 2 percent on Nasdaq.

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Rowan said it will have after-tax proceeds of $875 million from the sale, which it will spend on the offshore drilling business or expansion into ultra-deepwater drilling.

In the next few quarters, the company is also expected to hive off its land rig unit -- valued at $275-$375 million by UBS analyst Angeline Sedita.

Joy Global, meanwhile, is on an expansion spree.

With LeTourneau, Joy Global -- known for its giant shovels and draglines -- will compete with oilfield service equipment makers Cameron , FMC Technologies Inc and National Oilwell .

LeTourneau's customer base in the drilling market has been restricted as the market for its equipment primarily includes Rowan's rivals.

"The change of ownership will significantly expand LeTourneau's market acceptance," said Joy Global's CEO Mike Sutherlin.

Analysts had said Joy Global may look to flex its emerging market muscle and expand its product range in response to Caterpillar's purchase of Bucyrus and dominance of the $40 billion mining gear market. [ID:nN15274061]

Joy Global, which will fund the deal in cash and additional borrowings, said LeTourneau will add to earnings in fiscal 2011.

BB&T's Williams, who expects the LeTourneau deal to add 20-30 cents a share to Joy Global's 2012 earnings, said the company could make more bolt-on acquisitions in the next 6-12 months.

Bank of America Merrill Lynch advised Joy Global, and Barclays Capital advised Rowan. (Reporting by A. Ananthalakshmi and Thyagaraju Adinarayan in Bangalore; Additional reporting by Michael Erman in New York, Editing by Don Sebastian and Ian Geoghegan) (ananthalakshmi.as@thomsonreuters.com; within US +1 646 223 8780; outside U.S +91 80 4135 5800; Reuters Messaging: ananthalakshmi.as.reuters.com@reuters.net)