(TEX) Terex Bid Adequate – Demag Cranes Agrees

Terex Corp. (TEX) is now in the process of acquiring Demag Cranes for $1.4 billion. After agreeing to Terex’s bid of 45.50 euros per share in cash, up from 41.75 euros, last week, Demag has agreed to be taken over by Terex. The offer values Demag at 963 million euros (approximately $1.4 billion), which according to Demag is justified.

Demag now recommends its shareholders to accept Terex’s offer subject to a minimum acceptance threshold of 51% by Demag shareholders. The offer expires on June 30, 2011.

Further, according to Demag, shareholders Halso Lux and Boussard & Gavaudan have already accepted the offer tendering some of their shares. These shareholders had stakes of 3-5% each in the company, which now stand at 2.65%, 3.78% and 1.70%, respectively.

Demag favors the takeover as Terex complements its growth strategy and  is committed to protecting jobs and sites. The earlier offer was rejected by Demag on grounds that it was too low accompanied by the lack of transparency on the part of Terex regarding its plans for Demag.

Further, Demag’s two major shareholders — Cevian (owning just over 10% in Demag) and U.K. based activist hedge fund Centaurus Capital (owning 5% of Demag) — also rejected the offer on grounds of undervaluation.

In order to quell Demag’s grievances and/or concerns, Terex has entered into a business combination agreement with Demag ensuring operational and strategic autonomy to the latter even after Terex acquires a majority interest in the company.

Terex intends to fully support Demag Cranes’ strategies and ensure continued implementation in order to further strengthen the leading position the crane maker enjoys in its current business segments.

Besides the board’s plan to develop the mid-market segment, strategies include further expansion in the emerging markets and pursuance of the planned alliance between Demag Cranes and Weihua of China. As a reminder, Demag had announced the acquisition of a minority stake in China’s largest industrial crane maker Weihua, in January this year, with the intent of gaining control over the company.

Over and above, Demag Cranes’ headquarters will remain in Düsseldorf. For Demag Cranes’ German production sites — Wetter, Düsseldorf, Uslar and Luisenthal — Terex has given a site preservation guarantee for five years. Demag’s strong and successful brands like Demag and Gottwald will be preserved.

As an innovation and technology leader in its industry, Demag Cranes will continue to take responsibility for its research and development activities in the future. Demag Cranes Group will retain its full financial autonomy, including decisions about the dividend policy.

Returning to the bid, the increased price of 45.50 euros per share represents an approximately 25% premium to the closing share price of 36.30 euros on April 29, 2011 and a 28% premium to the three-month volume-weighted average share price of 35.56 euros as of April 29, 2011.

The new offer price also represents a 53% premium to the last undisturbed share price of 29.65 euros, prior to the speculation regarding a possible takeover by a previous bidder, Konecranes Oyi, of Finland, on October 6, 2010.

Demag recently raised its guidance for the fiscal year ending September 30. The company now envisions sales of around 1.06 billion euros in fiscal 2011, up from a previous forecast of 1.02 billion euros to 1.05 billion euros.

It also estimates its margin on earnings before interest and taxes at around 6.4%, near the upper end of a previous projection of 6.1% to 6.5%. Demag forecasts its annual revenue to reach 1.7 billion euros in fiscal 2014-15, an 83% increase from the 2010 level. Meanwhile, Demag sees operating income quadrupling to about 225 million euros by 2014-15.

Demag’s business complements the existing operations at Terex. With the acquisition, Terex will add a new product category of industrial cranes and hoists, and become the leading worldwide player in port equipment.

The combined entity will have a strong footprint in Europe and the emerging markets, especially in China, as Demag is counting on capturing the growing demand for cranes in that country, the world’s largest market for industrial cranes. Terex currently retains a Zacks #3 Rank (short-term Hold ranking).

Westport, CT-based Terex Corporation is a global manufacturer of a broad range of equipment for construction, infrastructure, quarrying, mining, shipping, transportation, refining, energy and utility industries.

The company’s manufacturing facilities are located in the U.S., Canada, Europe, Australia, Asia and South America. It operates through four business segments: Aerial Work Platforms, Construction, Cranes and Materials Processing. Terex competes with the likes of Caterpillar Inc. (CAT), Deere & Company (DE) and Komatsu Ltd. (KMTUY).

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