Terex to Buy Demag for $1.4 Billion After Sweetening Offer

Terex Corp. (TEX), the maker of Powerscreen rock crushers, agreed to buy Demag Cranes AG (D9C) for about 963 million euros ($1.4 billion) after raising its offer to win over management of the German company.

Terex is offering 45.50 euros a share, up from a previous bid of 41.75 euros, Dusseldorf, Germany-based Demag said today in a statement. The price is 25 percent higher than Demag’s close on April 29, the last day of trading before the Westport, Connecticut-based company’s first proposal.

Terex, keen to expand in port cranes as world trade recovers, overcame resistance to a combination from both Demag and shareholders such as Cevian Capital. Demag’s services division, which performs repairs and inspections, would cushion Terex’s earnings from stackers and mining trucks, which are more vulnerable to economic slowdowns. Demag has more than 660,000 of its cranes and hoists installed around the world.

“It’s about growth, not cost cutting,” Demag Chief Executive Officer Aloysius Rauen said today in a telephone interview.

Demag, which already attracted an approach from Konecranes Oyj (KCR1V) in February, advanced 1 euro, or 2.3 percent, to 45.23 euros in Frankfurt, putting its market value at 959 million euros. Demag has gained about 60 percent since October, prior to Terex’s initial bid and other takeover speculation.

Terex rose 58 cents, or 2.3 percent, to $26.06 at 4:15 p.m. in New York Stock Exchange composite trading.

Shaky Start

Terex CEO Ronald DeFeo tried in vain to get a meeting with his counterpart Rauen to discuss Terex’s initial offer, Handelsblatt reported on June 9. A day earlier, Demag had said it would only talk if a more attractive offer was made.

Rauen said he stuck by his strategy to tease out a better offer before engaging in negotiations. Demag secured a pledge that there will be no factory closures for five years and no forced firings for three years.

The new offer values Demag at 11.2 times earnings before interest, taxes, depreciation and amortization, based on analysts’ estimates for earnings in the current year. That compares to an average 6.5 times Ebitda for material-handling deals in the last 12 months, according to Bloomberg data.

Terex agreed to transfer its harbor-cranes business to Demag and the German crane maker will retain responsibility for both strategy and profitability under the terms of the offer, Rauen said in the interview.

‘Highly Complementary’

“Our businesses are highly complementary and the combination has compelling industrial logic,” DeFeo said in the statement.

Demag’s headquarters will remain in Dusseldorf and Terex wants current management to stay on, Rauen said. The executive declined to comment on whether he plans to continue with the company.

Crane makers are benefiting from a rebound in global demand with more than 80 percent of the world’s trade carried by sea. Terex, which makes cranes used at construction sites, as well as backhoes and wheel loaders, has said that buying Demag will “substantially” increase its earnings.

Demag expects an operating profit margin of about 6.4 percent for fiscal 2011, compared with 5.8 percent in the prior year. Sales are forecast to total 1.06 billion euros, ahead of an earlier target of 1.02 billion euros to 1.05 billion euros, Demag has said.

To contact the reporter on this story: Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net; Simon Casey at scasey4@bloomberg.net

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