|NEAR MISS. Manufacturers disagreed on contract terms. (Left photo by Terex Corp. and Right photo by Caterpillar Inc.)|
Two of the largest equipment manufacturers in the world have terminated a nonbinding agreement to acquire and cross-promote their mining-equipment businesses.
In a surprising turn of events, the huge win-win deal between Caterpillar Inc., Peoria, Ill., and Terex Corp., Westport, Conn., fell through early last month. The two manufacturers evidently could not agree on terms after more than five months of due diligence, despite the obvious benefits for both companies.
First announced last July, Caterpillar tentatively agreed to sell intellectual property covering its 5000 Series mining shovels to Terex in exchange for Terexs Unit Rig brand electric-drive trucks (ENR 9/7/03 p. 9). Cat would have continued to support, service and distribute the 5000 Series shovels in the field, and Terex would have gained much-needed access to Cat dealers for selling and supporting its popular German-made, O&K-brand shovels. It was a perfect chance for the companies to dump their weakest product lines and intensify their strongest ones. Likewise, equipment owners would have been able to shop for all machines and necessary parts at a single dealership.
Ronald M. DeFeo, Terex chairman, president and CEO, says the deal was dropped because of a difference in value and his companys reliance on third-party Cat dealers would have shifted too much of the risk to Terex shareholders. Officials at Caterpillar and Terex declined further comment.
The big firms had a lot to gain from the deal, which was, perhaps, too complex. Caterpillar is very profitable with its truck business and Terex has a good shovel business. Im sure that the Unit Rig business required some cash
and perhaps Cat wasnt willing to pay what Terex wanted, one analyst speculates.
Now that the agreement is off, the future is uncertain. Cat has shown that it intended to say goodbye to shovels and dominate the off-road truck market and Terex that it would like stronger supply channels. Acquiring a 40-year-old, electric-drive platform would have eliminated a costly research and development efforta behemoth and untimely undertaking that experts say would cost Cat as much as $50 million and take several years to complete.