Konecranes and Terex, two of the world’s biggest makers of cranes, forklift and other heavy-duty materials handling equipment, have announced that they will merge.
The all-stock deal will leave Terex shareholders with 60% of the stock in the new company, which will be called Konecranes Terex PLC.
Huge Tax Break
The new company will be located in 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 merger, Terex was headquartered in Westport, Connecticut, and the newly formed company will maintain offices there.
The deal is expected to be completed during the first half of 2016. 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 new company is expected to have annuals sales of about $10 billion. Within three or four years after the merger is complete, it will have projected sales of $10.6 billion with a projected operating profit of $1.1 billion, according to new reports.
The Changing Face of Terex
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.
The new company will 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.
Good Timing for the US Heavy Equipment Maker
The merger couldn’t have come at a better time for Terex. In addition to the tax benefits, there also are market forces at play.
Most of the new company’s revenues – about 45% — will come from industrial and port cranes. And the merger with Konecranes means Terex will be less reliant on its work platform division, a product line that includes motorized lifts for window washers, painters, and workers moving materials at construction sites.
Work platforms are often one of the first things to be cut from purchasing lists when the economy struggles. Terex officials have publicly indicated that the demand for work platforms is likely to decrease in the next year but denied rumors that the market is on the verge of collapse.
At the same time, Terex’s construction crane business has been in a prolonged slump since 2008, when the economic downturn caused the plug to be pulled on many big commercial construction projects.