August 11, 2015
Terex to Merge With Finnish Crane-Maker Konecranes
Source: Wall Street Journal
By: Bob Tita
The all-stock deal will leave Terex shareholders with 60% of the stock in the new company, which will be known as Konecranes Terex PLC. The company will be incorporated in Finland, where Konecranes is based, but will maintain offices in Westport, Conn., where Terex has its headquarters.
The deal is expected to be completed in the first half of next year. Konecranes, which had sales of €2 billion ($2.7 billion) last year, supplies cranes for factories, warehouses and maritime ports. Terex has been expanding its presence in the factory crane market in recent years, acquiring Germany’s Demag Cranes AG in 2011 for about $1.36 billion. But Terex has struggled since the recession to consistently deliver higher sales and profit because of uneven demand for its equipment. The company has revamped its business portfolio by selling equipment lines and cutting costs to counter its end-market weakness.
“We’ve been building towards this day,” said Terex Chief Executive Ron DeFeo during a conference call. “It’s a day that has come after years of hard work and focus on changing Terex to create a worldwide company with scale and [geographic] reach.”
The new company will have leading shares in both the global industrial crane market and the port crane market. They are slow-growing markets with annual global sales expanding at 2% to 4%. But the cranes typically remain in service for decades, generating steady revenue from replacement parts and maintenance service. As factories and ports become more automated, demand for better-performing cranes is expected to increase in the coming years.
The combined company last year would have had about $10 billion in sales, while Terex in 2014 reported sales of $7.3 billion. Within three to four years after the merger, the new company is expected to generate about $10.6 billion in sales with $1.1 billion of operating profit. Cost savings from the merger are forecast to reach $119 million a year.
The combined company will generate about 45% of its annual revenue from industrial and port cranes, up from 24% for Terex alone last year. Moreover, the addition of Konecranes will lessen Terex’s reliance on its work platform business, which accounted for more than one-third of Terex’s sales last year and more than half its operating income. After the merger, work platform sales are expected to make up 23% of revenue and about 40% of income.
Demand for the motorized lifts used by window washers, painters and workers moving materials at construction sites is prone to sharp drops when equipment rental companies periodically quit buying them. Terex has indicated that demand for work platforms is likely to slow next year, but insisted Tuesday the market is not on the verge of collapsing.
Meanwhile, Terex’s construction crane business remains in a prolonged slump that started during the 2008 recession when large commercial construction projects dried up. Construction cranes would account for about 18% of Konecranes Terex’s revenue, after making up 24% of Terex’s sales last year.
The merger “is an attractive diversification for growing Terex’s exposure to the less cyclical side of its business,” said Joe O’Dea, an analyst for Vertical Research Partners.
Terex investors will receive eight-tenths of a share of Konecranes stock for each of their Terex shares. Terex directors will make up five of the nine-member board, which will be led by Konecranes Chairman Stig Gustavson.
A search is under way for a chief executive. Konecranes CEO Pekka Lundmarkannounced in April that he’ll leave the company in September to become CEO of energy company Fortum Corp.
Mr. DeFeo, who has led Terex for 20 years, has already indicated that he will depart when his contract expires at the end of the year. He said Tuesday he would remain on the job for longer if needed.
“It’s my objective to see this through as far and as long as the board would like,” he said.
Terex shares closed up 22.6% at $26.78 a share.
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