16.05.2016

Konecranes buys Terex port/Material Handling

Konecranes is to acquire the Demag overhead and Gottwald port crane division of Terex as the two agree to end all merger talks.

Terex has agreed to sell its industrial and port crane services business – largely the Demag overhead crane and Gottwald port cranes business - to Finland’s Konecranes. At the same time the two companies have mutually agreed to end all merger talks.

Konecranes is paying $1.3 billion for the business, made up of $820 million in cash and 19.6 million newly issued shares in Konecranes. The deal will give Terex a 25 percent stake in the expanded Konecranes business, and it will have the right to nominate two directors. The deal is expected to complete at the end of the year. This deal can be called off any time up to the end of May - with a $37 million penalty - if a deal is struck with Zoomlion to acquire the Terex business as a whole before then.

The agreement frees Terex to pursue its discussions with Zoomlion in a deal that might be both more manageable and incur fewer regulatory hurdles. The Terex Konecranes had revenues of around €2.13 billion last year, the Terex port and material handling division will add around €1.39 billion.

Terex chief executive John Garrison said: “The sale of the MHPS business to Konecranes is good for our customers, team members and shareholders. This transaction is expected to be accretive to Terex earnings per share and preserves the strategic logic for the original merger of equals. In addition, it will significantly reduce Terex’s debt levels, improves our balance sheet and gives us longer term financial flexibility to invest in our business and buy back shares. As a 25 percent shareholder of Konecranes, Terex will also be able to share in the dividends, synergies and economic upside of the combined business.”

“This new transaction structure offers other substantial benefits to Terex shareholders as well. Importantly, the transaction locks in the benefits of the MHPS sale while preserving the ability for Terex to continue discussions with Zoomlion on a potential sale of the company at $31 per share with the MHPS business or, alternatively, for the sale of Terex without the MHPS business.”

Vertikal Comment

This looks like a good move for both companies, it is substantially simpler than the full merger and leaves Terex as a slightly smaller, more focused business. A business more easily digested by Zoomlion, which is facing its financial challenges of its own.

The tone of the release from Terex seems to suggest that a deal with Zoomlion is more likely that the Terex share price has until now suggested, although that may change when the market opens later today.

The removal of the port equipment related business from the Terex/Zoomlion equation certainly makes the deal with Zoomlion easier to do, both financially and in regulatory terms. If it does not go through it still leaves Terex as a more focussed company, with a stronger balance sheet. And there may be a financial argument to split the Terex businesses into more focused entities in the same way Manitowoc and Hertz have done, rather than sell it as a whole?

Interesting times