An announced merger between two of the world’s largest manufacturers of forklifts, cranes and other heavy-duty materials handling equipment is in jeopardy now that a Chinese company has company has intervened with a hostile takeover attempt.
China’s Zoomlion Heavy Industry Science & Technology Co. has offered $30 cash for each outstanding share of Terex, which last August announced a merger Konecranes Oyj, one of its biggest competitors.
The Chinese offer totals an estimated $3.3 billion. If the deal goes through, it will be the first time a Chinese construction equipment company has openly tried to purchase a US competitor, according to a Wall Street Journal report.
The offer could be too tempting for Terex shareholders to pass up. Even though after the announcement of the offer shares of the company’s stock soared 37% to $20.50, that price was still well below the Zoomlion offer.
Chinese Seek Entry into US Markets
China has tried to penetrate the US construction machinery market for many years, but with limited success. Currently, the Chinese equipment market — as well as China’s economy as a whole — have been mired in an economic slump. Buying a company like Terex could offer the Chinese construction equipment industry a way out.
In August, Terex announced that it was merging with Konecranes in an all-stock deal. The merger would have given Terex shareholders with 60% of the stock in the new company, which was to be called Konecranes Terex PLC. That deal is now on hold as both companies await the outcome of the Chinese company’s hostile takeover bid.
When Terex officials announced the merger with Konecranes, they planned on relocating the business to Finland, home to Konecranes and where the corporate tax rate is only 20% compared to the 35% tax rate in the US. Prior to the proposed merger, Terex was headquartered in Westport, Connecticut, and the newly formed company planned to maintain offices there.
Both sides had hoped to complete the deal within the first half of this year. Konecranes, which has annual sales of $2.7 billion, builds cranes for factories, warehouses, and ports. Its biggest competitors are Japan’s Kito, China’s ZPMC, and the US company Columbus McKinnon
Terex has annual sales of about $7.3 billion and makes cranes and equipment for miners and builders. Its biggest rivals are Caterpillar and Finland’s Metso.
The newly combined company was expected to have annuals sales of about $10 billion. Within three or four years after the merge, it’s projected sales were expected to be about $10.6 billion with a projected operating profit of $1.1 billion, according to new reports.
Terex Growth
In recent years, Terex has attempted to expand its presence in the factory crane market by buying the German company Demag Cranes AG in 2011 for $1.36 billion.
But Terex since the global economic slowdown, Terex has struggled to deliver higher sales and profits because the global demand for heavy equipment has been inconsistent. In response, the company has sold equipment lines and cut costs.
If Terex still merges with Konecranes, the new company would be one of the biggest players in the industrial and port crane markets. But these industries have been slow to respond to the economic turnaround and global annual sales have expanded at a paltry 2% to 4% in recent years.
While cranes are something companies buy infrequently, there is always a strong market for replacement parts and maintenance services. And as ports, factories and other facilities become more automated, there may be an increased demand for newer, better performing cranes in the coming years.