Terex/Konecranes EGM not seen before June, source says
* No talks between Konecranes and Zoomlion
* CFIUS will look beyond political noise
Konecranes (HEL:KCR1V) and Terex (NYSE:TEX) are not rushing to make a proxy filing for their proposed merger since a shareholder vote is unlikely to take place before June, a source familiar with the situation said.
At this stage, Konecranes, a Finnish crane manufacturer, is focused on securing regulatory approvals for its USD 2.5bn all-stock merger with its US peer, the source familiar said. The deal, announced in August 2015, remains subject to antitrust reviews in the US and Europe and a US national security review by the Committee of Foreign Investment in the US (CFIUS). Konecranes and Terex notified US antitrust regulators last fall and have been in pre-notification talks with the European Commission.
In January, Chinese construction equipment maker Zoomlion Heavy Industry Science & Technology (SHE:000157) launched a USD 30 per share all cash interloper bid. Westport, Connecticut-based Terex has since engaged in discussions with Zoomlion but has not changed its support for the Konecranes deal.
Last month, Zoomlion upped its bid to USD 31 or more than USD 3.4bn. The company and Terex remain in active discussions, a person familiar with the situation said on Friday.
Konecranes does not have to take any new actions, but if Terex’s board changes its recommendation, the Finnish company will evaluate its next course of action, the source familiar said.
Under the merger agreement, Konecranes can demand Terex hold a shareholder vote on its proposal even if its board deems a rival offer superior.
Konecranes has considered “what scenarios can happen over the next few weeks and months,” the source familiar said, noting that the company has some ideas. Since Konecranes believes Zoomlion has limited chances of successfully completing a deal, reacting now would not be the right strategy, he said.
Konecranes’ board will not destroy value for its own shareholders just to outdo Zoomlion, the source familiar cautioned. Konecranes Vice Chairman Stig Gustavson told this news service the Finnish group has “no intention to compete with the Chinese government” in its pursuit of Terex.
Konecranes is “fully prepared” for discussions about alternatives if Terex deems Zoomlion's latest offer superior, the source familiar said. But he said there have been no three-way discussions between Zoomlion, Terex and Konecranes, or talks between Konecranes and Zoomlion, about other options for a combination deal.
Since the August deal announcement, Terex has struggled with quarterly performance and the US crane maker continuously revised its forecasts, the source familiar said. Therefore, Konecranes would not improve its offer on a “perceived deal” from Zoomlion, he noted.
Terex in February said it expects 2016 earnings to come in below analysts’ forecasts, citing the "macro operating environment." Both stocks have declined since the deal announcement.
Under the Konecranes deal, Terex shareholders will own 60% of the combined company with requisite board representation. “For the Konecranes board it may also be about why pay more to receive less for a company that has become less attractive since the deal was announced,” the source familiar said. He said the company believes it has made a compelling offer for Terex.
In an election year in the US, the CFIUS angle comes into sharper focus, Gustavson said. Politicians have spoken out against a Zoomlion deal, he said.
Some risk-arbitrageurs owning Terex stock have “wishful thinking” that makes them believe that cranes cannot be deemed “sensitive business,” for the government, the source familiar said.
George Wang, a partner at law firm Barton LLP, who specializes in cross-border M&A and CFIUS reviews, said the CFIUS committee focuses on national security and infrastructure concerns, not what the “outside world” says about a proposed merger.
‘‘They won’t necessarily listen to those outcries unless it brings something to their attention that it might not have been aware of. Also important to note, we are in an election year, so there’s also a lot of political grandstanding on the part of politicians,” he added.
If Zoomlion succeeds in acquiring Terex, it will be the world’s largest player and operator of port cranes, along with another Chinese player, the source familiar said. “Ports are a critical part of US infrastructure, it involves intelligence gathering, automation surveillance technology,” he said. Terex is also a supplier to the US military.
A US government contracting database said Terex had USD 14m in federal contracts with federal government for fiscal 2016, down from USD 29m the year prior and a 2010 high of USD 40m.
Wang said if an issue was brought to the committee’s attention, Zoomlion could try to resolve the problem with a mitigation agreement. While political pressure should not theoretically affect the committee’s decision, it could affect the planned deal in other ways such as making the bidder so fed up that it walks away, he added.
To address regulatory risks, foreign acquirers often agree to pay a large reverse termination fee in the event they are unable to close a proposed acquisition.
Terex did not respond to calls for comment. Zoomlion declined to comment.