Cargotec and Konecranes to merge
The directors of both Cargotec – owner of Hiab and Kalmar – and fellow Finnish marine and industrial crane manufacturer Konecranes have agreed a merger.
The two boards signed a combination agreement and a merger plan this morning. The combined material handling group would have revenues of around €7 billion -of which 40 percent will be service related - with an operating profit of €565 million, 29,400 employees across over 50 countries with 8,500 service employees working from 800 service locations. The two companies believe that they will have synergies leading to an annual cost savings of €100 million within three years of completion.
The proposed combination will be implemented as a statutory absorption merger with Cargotec absorbing Konecranes. It is also likely that the merged company will look for a new name.
Cargotec will issue two new shares for each existing class A share with the same ratio for class B shares. Konecranes’ shareholders will receive 0.3611 new class A shares and 2.0834 new class B shares in Cargotec for each Konecranes share. The net result will see both Konecranes and Cargotec shareholders owning 50 percent of the merged business.
Konecranes shareholders will also receive €158 million – or €2 a share. A further €70 million will be distributed to both sets of shareholders during 2021.
The deal will require the agreement of a majority of two thirds of the shareholders with completion expected in the fourth quarter of 2021, subject to all conditions for completion being fulfilled.
Cargotec shareholders representing 44.8 percent of the equity and 76.3 percent of the votes have already agreed to the deal, while Konecranes shareholders representing 27.4 percent of its equity have already signed off on the deal.
The new board will have an equal number of directors from both companies, with Christoph Vitzthum, Janina Kugel, Ulf Liljedahl and Niko Mokkila from Konecranes, plus Tapio Hakakari, Ilkka Herlin, Kaisa Olkkonen and Teuvo Salminen from Cargotec. The chairman will be Christoph Vitzthum of Konecranes.
Vitzthum said: ”The combination of Konecranes and Cargotec, with their iconic technology brands, innovation capabilities, talented people and focus on sustainability, will create a company that is clearly greater than the sum of its parts, delivering robust synergies and creating a unique platform for shareholder value creation. Customers will benefit from the companies’ combined technologies and even better service capabilities. This is a pivotal moment for Finnish industry and the material handling industry as a whole, and we are fully ready and committed to seize this historic opportunity.”
Cargotec chairman, Ilkka Herlin, added: “Sustainability has been high on Cargotec’s agenda since its foundation and this merger enables us to become a global leader in sustainable material flow. Our customers are increasingly seeking green solutions and together we will have better opportunities to solve customers’ challenges. I believe this is an excellent value creation opportunity both from a business perspective and also shaping global trade for the better. The future company will be well-positioned to utilise these opportunities and create strong value for its customers, employees and shareholders."
Konecranes chief executive Rob Smith said: “The future company will be a global leader with its unparalleled product range, global service network, industry-leading intelligent technology and an unwavering commitment to safety. Supporting this will be top talent from both Konecranes and Cargotec and a passion to lead in sustainable material flow to deliver the very best for our customers. The timing is right, and the logic and fit of this combination are compelling. Konecranes looks forward to starting this journey together with Cargotec.”
Mika Vehviläinen the Cargotec chief executive added: “The future company will have enhanced opportunities to improve the efficiency in customers’ operations and shape the whole industry forward to a more sustainable and intelligent one. Together we are stronger, and our combined R&D resources will enable us to accelerate innovation in automation, robotics, electrification and digitalisation. Both companies have broad service networks and together we can offer our customers superior value through our world-class service platform and intelligent technology.”
A surprising start to the day! This move has some rationale but also some risks, endlessly larger group companies have not always worked, and the anticipated level of synergies rarely occur in reality. But there are of course come potential benefits. The loader and marine crane market is becoming increasingly sophisticated and not an easy one for smaller companies or start-ups.
A key element of the move will be the service and technology sectors which are becoming increasingly important, particularly in the port handling market. Size can help with this, but also hinder, for example Cargotec has been evaluating what to do with its Navis software business
- which it acquired for $190 million in 2011 - for some time now. Tech operations tend to lose their creativity when they are faced with corporate restrictions.
With Hiab the company will remain a leading manufacturer of loader cranes and other truck mounted material handling equipment. The merger changes little as there is little, if any overlap between the two groups.
Kalmar and Konecranes have a substantial overlap however, both offering reachstackers, big fork trucks and other port handling cranes and equipment. Konecranes has absorbed the Terex port handling equipment business in 2017, providing it with the Gottwald mobile harbour crane line. And it will be interesting to see how it handles the two marine handling product lines and whether it will merge the brands or keep them separate.
Konecranes is also a leading player in the fragmented industrial lifting market, including overhead cranes. It acquired the Demag material handling business from Terex in 2017 and, as with Hiab, the merger changes little.
On reflection, if managed along the lines that Cargotec has adopted in recent years – keeping the corporate headquarters as small as possible and leaving the divisional managers to manage their businesses – this could turn out to be a very positive move for both sets of shareholders and most of the employees.