27.05.2016

Zoomlion terminates Terex bid

Zoomlion has ended months of speculation by pulling out of its bid for Terex, leaving Terex free to complete the sale of its port and industrial crane business to Konecranes.

News that the bid had fallen through first broke in Hong Kong this morning and has now been confirmed, although Terex has yet to post an official statement. Zoomlion however said that it has abandoned the bid, having failed to reach a deal after months of talks. In a filing made this morning to the Hong Kong stock exchange it added: "No agreement can be made on the crucial terms, in spite of the joint efforts to closely negotiate."

Terex chairman David Sachs said: “The board of directors and management of Terex worked diligently to determine if an appropriate transaction with Zoomlion, beneficial to Terex shareholders, was achievable. Unfortunately, after many months of discussions, Zoomlion was unable to provide a fully financed, binding proposal for the purchase of Terex with or without MHPS. This ends the prolonged period of uncertainty that this process has brought to Terex and its customers, team members and shareholders. The board is confident in our global management team and with Terex’s prospects for the future.”

Chief executive John Garrison added: “The sale of the MHPS business to Konecranes will now proceed. This transaction represents excellent value realisation for our shareholders and also provides certainty for our MHPS customers and team members. We expect this sale to be accretive to Terex’s earnings. The proceeds will significantly reduce debt levels and improve our balance sheet, providing us with the ability to buy back shares and invest in our remaining businesses. As a 25 percent shareholder of Konecranes, Terex will be able to share in the synergies and economic upside of the combined MHPS and Konecranes businesses.”

This announcement follows almost four months of back and forth announcements, beginning with the unsolicited $3.25 billion offer from Zoomlion in late January, See Zoomlion bids for Terex although this was not officially confirmed for a week or two.

A month later Terex put a hold on some of the integration work it was doing with the already agreed merger with Konecranes of Finland. Terex suspends work on merger integration

In March Zoomlion reported a record slump in profits and revenues and upped its bid for Terex to $3.4 billion, talks then started to get more serious, with Zoomlion senior managers reportedly visiting Terex facilities. See Zoomlion ups its offer

Then earlier this month Terex agreed the sale of its Port handling and overhead crane businesses to Konecranes and officially ended the proposed merger with the company. See Konecranes buys Terex Port and Handling That deal has an escape clause that expires next Tuesday.

Vertikal Comment

This is no great surprise, you only had to look at the Terex share price which for most of the period languished around $10 a share below what Zoomlion had already offered. This suggested that those close to how these deals work never believed it would go through. The sale of the port business to Konecranes had a break clause - with a fee - at the end of this month so if Zoomlion had aims on the whole group, time was running out.

The deal with Konecranes is also a more pragmatic one and Konecrane shareholders positively reacted on the news that the merger was dead with a surge in the company share price, also driven of course by the fact that the purchase of the Terex port business is far simpler and more logical.

So the big question now is what next for Terex? Does it go back to being a part specialist part general construction equipment/materials processing group or split? Cranes and access equipment go well together, materials processing would probably stand alone and the construction business could probably be sold or merged with another company?

This will surely be a question asked when the half year results are presented.