Terex-Zoomlion Talks Aborted, Konecranes Deal to Proceed
Shares of Terex Corporation TEX declined over 14% to close at $20.89 on May 27, after it announced that Zoomlion Heavy Industry Science and Technology Co. has terminated talks to buy it.
In Jan 2016, Terex received an unsolicited, non-binding acquisition proposal, with or without the Material Handling & Port Solutions (MHPS) segment, from Zoomlion to acquire all of Terex’s outstanding shares for $30 per share in cash. Although Terex rebuffed Zoomlion’s first bid of $30 per share in Mar 2016, the latter raised its bid to $31 a share.
Terex management and board of directors, worked with their legal and financial advisors, and reviewed the proposal to determine a profitable course of action for the company's shareholders. Yet, after discussions for months, Zoomlion was unable to provide a fully financed, binding proposal for the purchase.
Meanwhile, Terex announced that the sale of its MHPS segment to the Finnish company, Konecranes, will proceed for roughly $1.3 billion. The sale, which is expected to close in Jan 2017, is subject to customary regulatory approvals and the approval of Konecranes' shareholders. Terex scrapped its old merger deal with Konecranes, announced in Aug 2015, which would have created a global leader in lifting and material handling solutions.
The MHPS segment, which contributed around 22% to Terex’s total sales in first-quarter 2016, is involved in the design, manufacturing and marketing of industrial cranes. This includes standard cranes, process cranes, rope and chain hoists, electric motors, light crane systems and crane components and port equipment.
This segment is exposed to soft equipment sales and has suffered operating losses in five out of the past six years. The segment incurred a loss of $61.8 million during the first quarter, significantly wider than the year-ago loss of $4.4 million.
Even though the Konecranes deal would have allowed Terex to reduce its U.S. tax liabilities by redomiciling to Finland, the sale of the underperforming MHPS segment will remove a major drag from the company’s business.
This sale is expected to be accretive to Terex's earnings. It will significantly reduce the company's debt levels, improve its balance sheet and provide long-term financial flexibility to invest in business and buy back shares. Moreover, as a 25% shareholder of Konecranes, Terex will be able to share dividends, synergies and the economic upside of the combined business.
Terex currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industrial products sector include General Cable Corporation BGC, SPX Flow, Inc. FLOW and Gorman-Rupp Co. GRC. Each of these three stocks sports a Zacks Rank #1 (Strong Buy).
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