Terex bids for Demag

Terex has announced that its German subsidiary, Terex Industrial Holding, Dusseldorf will make a voluntary cash public tender offer of €41.75 per share. for Demag Cranes, the port and overhead crane manufacturer, 

The offer price represents a 15 percent premium over Demag’s closing share price on Friday and a 41 percent premium compared to last October, when speculation regarding possible takeover interest first emerged. 

The offer is worth €884 million and Terex says that it will finance it from existing cash and an already committed debt financing. The tender offer will carry a minimum acceptance level condition of not less than 51 percent of all Demag shares outstanding.

The company added: “Demag's business is highly complementary to the existing Terex business, and the combination has compelling industrial logic. The combined entity would have had total revenues of about $5.8 billion in 2010 with a strong footprint in Europe and emerging markets, especially in China.”

Chief executive Ron Defeo said: "Demag is a leader in industrial cranes and port technology, and our companies are highly complementary. By combining our businesses, we would add a new product category of industrial cranes and hoists, and create the leading worldwide player in port equipment." 

"Demag products are competitive and innovative. The company is professionally managed, with highly motivated staff, and Terex will draw on this for both Demag's on-going success and the future of Terex as a whole. Terex intends to build on the strong brand and service franchise of Demag in Germany and abroad. This transaction is predicated upon growth and not cost reduction." 

“Germany is already a strong market for Terex. Over the last ten years we have acquired four significant German businesses, one of them Demag's former sister company Demag Mobile Cranes in 2002, whose turnover has more than doubled since. Today, Germany is Terex's second-largest market and production base. About 22 percent of Terex's global headcount are located in Germany.”

The offer document is subject to approval by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin).

Vertikal Comment:

Having acquired the Fantuzzi port business in 2008 this move makes some sense, giving the company a major stake in the port crane and lifting market. 

The overhead industrial crane business makes less sense in terms of synergy but could either be sold off or combined with the two marine businesses to create a strong stand alone division. There will also be those in Germany that will be in favour of the two Demag crane brands being brought back together again.

Terex could though face some competition in this deal from Konecranes which also made a run at the Demag business last October and apparently a further attempt in February when it was once again rebuffed by Demag’s management. 

If Terex does pull it off it is highly likely that it will have to pay more than the €41.7 it has offered – the deal could easily go up to a €1 billion.

Whoever wins Demag there is a tough regulatory hurdle to clear before the deal is done. The German authorities have a history in stopping the consolidation of port crane companies – and actually prevented Cargotec from acquiring CVS Ferrari in 2007, on the grounds that it would be “anti-competitive”. 

One has to wonder how this deal is any different – although much as changed since 2007 and one has to assume that Terex and its advisors have looked into this and possibly even been given the nod by the German Kartelamt?

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