Zoomlion bids for Terex, attempt to override merger with Konecranes

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Terex, Konecranes and Zoomlion merger
What will be the final decision for Terex ?

Zoomlion Heavy Industry Science & Technology Co. offered to buy US crane-maker Terex Corporation for an estimated amount of US$ 3.3 billion, an attempt to override an existing deal between Terex and Finland’s Konecranes.

Zoomlion’s unsolicited offer on 26 January 2016, which sent Terex shares soaring on Tuesday, appears to the first time a Chinese construction machinery company has openly tried to buy a U.S rival, analysts said. Chinese machinery manufacturers have had limited success penetrating the U.S market with their own brands. China’s equipment market – the world’s largest – is mired in a prolonged slump.

Corporate bond research firm Gimme Credit reports that Zoomlion has significantly lower operating margins than Terex. The company reported a loss of 391 million yuan (US$59.4 million) in the 3rd quarter ended 30 September 2015.

Zoomlion couldn’t be reached for comment.

Related: Terex and Konecranes Merger Halted

Terex said on Tuesday that Zoomlion offered US$30 in cash for each Terex share, making the deal worth about US$3.3 billion. Terex stock surged 37% to close at $20.50 a share after the offer was disclosed.

Under the all-stock deal with Konecranes, announced in August 2015, the Finnish company would exchange 0.8 share for each Terex share. Based on Konecranes’s closing stock price in Finland on Tuesday and on current exchange rates, each Terex share would be valued around US$18. Terex shareholders would get 60% of a new company to be called Konecranes Terex based in Finland.

Terex said its board hasn’t backed away from an earlier endorsement of the Konecranes merger, but that Terex has entered discussions with Zoomlion regarding the proposal. Terex declined to comment further until its board finished reviewing the new offer.

Konecranes said on Tuesday it will continue to pursue the merger of equals with Terex, calling the deal “a highly compelling opportunity for both companies”.

Connecticut-based Terex was built through a series of acquisition starting in the mid-1990s. It sells a broad line of cranes used at construction sites, ocean ports and in factories. The company also sells rock crushers and mechanized aerial work platforms used by construction workers, painters and window washers. The global crane market has mostly struggled to rebound since the 2008 recession sharply reduced skyscraper construction and big infrastructure projects in Europe and the U.S

China manufacturers including Zoomlion and Sany Heavy Industry Co. have had difficulty gaining more than a small foothold in the U.S over the past decade, said Frank Manfredi, an industry consultant in Cocoa, Fla. Their lack of dealer networks to provide repairs and other service is considered a critical shortcoming, because customers can’t afford to wait long when machines break down. Many experienced dealers are already committed to established equipment suppliers like Caterpillar Inc. and Komatsu Ltd.

Rental companies are increasingly large buyers of equipment, but they too need service. Though Chinese equipment is often 30% or more cheaper than U.S made products, rental companies generally “are not willing to take a risk on a brand they don’t know”, Mr. Manfredi said. Terex has long been a big supplier to rental companies and could presumably help Zoomlion penetrate that market.

References

  1. Terex, already in a merger deal, gets buyout bid from China’s Zoomlion, The Wall Street Journal, 26th Jan 2016.