Deal Reporter
The tie-up between Konecranes [HEL:KCR1V] and Terex [NYSE:TEX] is likely to need competition approval from the US, the European Commission and China, according to the Finnish company’s chairman Stig Gustavson.
Today, 11 August, the two companies announced an all-share merger that will result in Terex investors owning 60% of the combined group and Konecranes shareholders owning 40%.
The groups undertook a thorough analysis and received significant advice on the competition aspects of the deal, Gustavson said during a conference call in presentation of the deal. Terex’s CEO Ron DeFeo added that there would be a “positive outcome” and any consequences would be dealt with as the deal progressed.
China was quite slow at processing competition review, according to Gustavson, but he stopped short of saying the deal timetable would depend on the length of the Chinese review. The deal is expected to close in the second quarter of 2016.
The deal will trigger a change of control clause on existing notes issued by Terex, said Terex CFO Kevin Bradley. “We have all the financing in place to face this situation and will start a consultation with bondholders,” he added.
Gustavson has dismissed a suggestion that the deal was not a merger of equals, in response to a question on whether the split was equal and reflective of the companies’ revenues, employees and of the stock market multiple Konecranes.
“This is a genuine merger of equals and that is the end of that story,” Gustavson said. The all share deal will mean Terex shareholders receive 0.80 Konecranes shares for each share owned in the US group.
The 0.80 ratio was irrespective of dividends, according to DeFeo. The expectation is that Konecranes will pay its dividend before the deal closes in the middle of 2016, he said. The business combination agreement allows for Terex to match this for its shareholders.
When quizzed on how a post-deal EUR 1.4bn (USD 1.5bn) share buy-back would be financed, DeFeo said that the group would “throw off” substantial free cash flow and leverage ratios of the combined company would be “quite reasonable”, but they would assess matters along the way.
Asked about the potential tax benefits for Terex, Gustavson said there would be some financial benefits but declined to comment further, adding that with such a complex matter it would “take the whole day to go through the benefits”. The combined group will be incorporated in Finland with headquarters in both Finland and the US.
In a later call the companies said that the combined group would have a tax rate percentage in the mid-20s in two-to-three years’ time, compared to their current rates in the low-30s.
Annual operational synergies of at least EUR 110m (USD 121m) in EBIT contribution and an additional EUR 32m (USD 35m) post-tax income benefit from financing and other means are expected to be implemented within three years.
“This is an outstanding transaction” with clear near-term and long-term benefits, DeFeo said. The two companies share important cultural similarities and have a focus on technology, he added.
DeFeo and Gustavson first met around 25 years ago, according to the latter. “Good things come slowly but they come,” he said.
The timing was right as the current environment is challenging and as a combined group, the companies could withstand global headwinds and any impact on tailwinds, DeFeo said. “We think we’ll have a very well-balanced business from a geographical perspective,” he said.
DeFeo added that industrial lifting and port solutions would be a very significant part of the business. Alongside industrial lifting and port solutions, the combined group’s offering will consist of aerial work platforms (under Terex’s Genie brand), cranes, materials processing and some smaller divisions.