22.11.2008

Terex may walk from Fantuzzi deal

Terex has informed Fantuzzi that “it believes that a material adverse change may exist with respect to the Fantuzzi business or other grounds exist which may preclude completion of its acquisition” of the company’s port handling business. Terex has requested that Fantuzzi provide it with additional information to allow it to determine whether such a material adverse change has in fact occurred.

It is also checking if all conditions that it laid down prior to the deal going ahead have been satisfied. The company says that so far it has only had an initial discussion on this subject with Fantuzzi and that the final outcome is still open.

Fantuzzi in a separate statement said that it was "extremely surprised" by Terex's announcement, particularly coming after clearances by EU and Ukraine regulators.

It said it believed the deal could be finalised soon, after obtaining the final approval from competition authorities in Turkey.

Vertikal Comment

Such a statement usually means one of two things, either that the acquirer is looking to walk away from the deal, usually because if has got ‘cold feet’– as in the case of Cerebus walking away form the United Rentals deal - .Or that it is looking to renegotiate the price.

Ron Defeo came under some pressure during Terex’s third quarter conference call from one or two analysts who questioned whether Terex should be going ahead with the Fantuzzi acquisition, given the uncertain economic situation. He would not even entertain a discussion on the subject during the call – a deal is a deal...

Since then it is almost certain that he will have come under more pressure to reconsider, at the same time reports suggest that Fantuzzi’s shortage of cash is decimating its Italian business at least in the short term. If Terex does want to walk from this deal it should have no problem finding sufficient evidence to do so.

Our initial comment stated that there was little or no synergy between Fantuzzi and the Terex crane business, and this is still our view. However as an equipment business that fits in well with what Terex does, it could still prove to be an excellent deal. Terex would acquire a lot for its money and add a new sector that cycles differently from its main construction related businesses.

The group is currently benefiting from the fact that its mining and large crane businesses are doing well while its aerial lift and construction equipment sectors are suffering. Cranes usually cycle with construction equipment, this time round things are different due to global development and infrastructure factors next time perhaps not?

Port equipment is closer to the mining and minerals business cycle and would provide further cyclical diversity for the group.