Just a few weeks ago, U.S. crane-maker Terex was well-placed to strike a deal with two suitors, now it has a buyer for just part of the company. It's painful, but better than nothing.
Chinese construction-equipment maker Zoomlion said on Friday that takeover talks with Terex were over because the two sides couldn't agree on "crucial terms." Terex shares plunged as much as 21 percent.
It brings to an end a carefully built three-way transaction that should have been good for all parties. To get there, Terex had called off full-blown merger talks with Konecranes, choosing instead to sell the Finnish company only its material-handling and port business (the bit the Finns really wanted).
That left the path clear to sell the rest of the company to the Chinese, who probably didn't want the ports business anyway because it would have drawn scrutiny from U.S. regulators looking at national security risk.
Terex was amenable to selling itself to two parties because, presumably, it would get more money. So everybody was happy. Or so it seemed.
Chinese buyers have a rep for overpaying in M&A. But, in this case, Zoomlion was unwilling to play up to the stereotype. It says Terex had over-inflated expectations about the value of the rest of the company -- which manufactures rock-crushing machines among other things.
Zoomlion's initial bid was $31 a share, but obviously with about a fifth of the company being hived off to the Finns, it wouldn't have wanted to stick with that. Bloomberg Intelligence estimated about $28 a share might be reasonable.
Terex for its part seemed to cast doubt on Zoomlion's ability to finance the deal. The Chinese company's 41 billion yuan ($6.4 billion) in debt is indeed bigger than its market value, but it's not like that was a secret. Assessing Zoomlion's ability to pay seems like the kind of thing Terex might have wanted to sort out before pulling out of the Konecranes merger.
So, all in all, not brilliantly handled by Team Terex. Still, it could be worse. Yes, the $1.3 billion from the Konecranes port deal is a long way from the $3.4 billion (excluding debt) that Zoomlion offered for the entire company. But $1.3 billion is a decent payout for a business that's lost money for the past three years.
Getting rid of ports may also leave Terex better-placed to weather the commodity slump and slow economic growth that's eroding demand for heavy machinery. Without that unit, its net debt may drop to about $740 million, compared with $1.5 billion as of March 31, according to Stifel analyst Stanley Elliott. The agreement with Konecranes also gives Terex an equity stake in the Finnish company, letting it benefit from any upside from combining their crane and lifts units.
Terex shares traded for about $20 on Friday morning in New York. That's still more than the implied valuation of the full-blown Konecranes merger before it was abandoned.
The Finns are the winners here, though. The ports division may not have been doing well under the Terex umbrella, but it's the part of the company that fits best with Konecranes -- so much so that it sees more operational savings in the partial deal than from the full-blown merger.
So it turns out it's hard to make everyone happy. Unlike the rocks that pass through its machines, Terex shouldn't feel totally crushed.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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