Equipment manufacturer Terex Corp. announced May 16 that it is ending its plan to merge with Konecranes, and will instead sell its material-handling and port solutions [MHPS] unit to the Finnish-based company for $1.3 billion. Terex had signed a merger agreement with Konecranes in August, 2015, but it received an unsolicited takeover bid from Chinese-based Zoomlion in February. Konecranes will acquire Terex's MHPS business unit for $820 million in cash and 19.6 million newly issued Konecranes shares.
Terex reserves the right to terminate the deal with Konecranes up to May 31, and says it may do so if it receives a fully financed acquisition offer from Zoomlion by that time. In that case, Terex would pay Konecranes a termination fee of $37 million. According to Terex, Zoomlion is aware of these terms, and Terex is now awaiting their next move. “We are continuing our discussions with Zoomlion regarding a possible acquisition of Terex, with or without the MHPS,” says John Garrison, president and CEO of Terex, in a May 16 call with analysts. “Our objective remains to obtain a fully financed and binding agreement.”
According to Terex, the deal with Konecranes will have several immediate benefits, including a cash infusion to pay down outstanding debt and will see Terex’s debt-to-dollar ratio go down from 2.9x to 1.8x when the after-tax proceeds are factored in, the lowest ratio in the company’s recent history.
Zoomlion has maintained that it has the financing in place to back its original bid of $31 a share for Terex, and issued a statement on Feb. 17 showing support from Chinese banks willing to finance the deal. Terex has expressed continued interest in Zoomlion's offer, but is not yet satisfied with the financing. According to Garrison, the recently announced deal with Konecranes “locks in the benefits of the MHPS sale, while buying Zoomlion time over the coming weeks to enter into a fully financed and binding agreement for the acquisition of Terex at $31 per share.”
The acquisition of US-based Terex by a major Chinese company had also drawn some criticism from Congress. In February, Rep. Duncan Hunter (R-Calif.) sent a letter to Treasury Sec. Jacob Lew asking for greater scrutiny of the deal by the Committee on Foreign Investment in the U.S., which would have to approve the acquisition. Most of Hunter’s and others’ objections to the acquisition stemmed from security issues related to potential Chinese ownership of Terex’s port solutions unit. The sale of that business unit would appear to satisfy concerns about such an acquisition receiving approval from CFIUS.
Terex’s Garrison disagrees with speculation about the port solutions business being a hurdle for CFIUS approval, but said that “to the extent that that commentary may have been correct, not saying we agree with it, but this agreement clearly facilitates the remaining assets of Terex to be acquired by Zoomlion.”
While the two-week window for Zoomlion to interrupt this deal and get all of Terex is in place, Garrison doesn’t see it as a final deadline for a Zoomlion offer. “There’s no restriction on what [Zoomlion] can or cannot do, but after the two weeks we have a binding contract with Konecranes for sale of the MHPS segment to Konecranes.”
While the Terex board has expressed interest in Zoomlion's $31-per-share offer, that figure included the MHPS unit. Any acquisition offer from Zoomlion after May 31 would be for Terex without the MHPS unit. "We have had negotiations [with Zoomlion] without the MHPS segment, and those discussions continue," said Garrison.