Terex Corp’s (TEX) Demag Cranes AG takeover offer faces another hurdle. Demag’s second largest shareholder, the U.K. based activist hedge fund Centaurus Capital, with more than 5% interest rejected the offer citing it as too low.
Centaurus Capital joins Demag’s biggest shareholder, Cevian (owning just over 10% in Demag) in rejecting the takeover. Cevian had cited that ever since the bid was announced on May 2, 2011, Demag shares have traded above the bid per share of 41.75 euros and labeled the offer as grossly inadequate.
As a reminder, Terex’ 883.9 million euros ($1.3 billion) or 41.75 euros per share offer for Demag Cranes AG will expire on June 30, if the minimum acceptance threshold of 51% by Demag shareholders is not satisfied. However, until last Thursday, only 1.02% of the shares had been tendered.
Earlier, Demag had rejected Terex’ offer on grounds of a low offer price and the lack of transparency by Terex as to its future plans for Demag. The crane maker said that Terex failed to take into account the sales and profit expansion that Demag expects by the middle of the decade. Demag predicted its annual revenue will 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 however added that it is open to further discussion.
According to recent reports, Demag seems to have softened. It is open to talks with Terex and would consider the offer if the bid price is raised. However, Terex had earlier stated that it has no intention whatsoever to increase the bid price.
Terex’ offer price of 41.75 euros per share is at a 41% 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. The price is also at a 15% premium to the closing price on April 29, 2011 of 36.30 euros.
Demag’s business complements the existing operations at Terex. Despite the opposition, if Terex successfully pursues the acquisition, the company 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 emerging markets, especially in China.
Demag is counting on capturing the growing demand for cranes in developing countries like China, the world's largest market for industrial cranes. On these lines, Demag 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 in the months ahead.
Demag's stock has been trading consistently above the offer price, putting more pressure on Terex to raise its offer. The current development aggravates the pressure. Considering the synergies from this combination, it remains to be seen whether Terex budges from its stand and ups its offer. We await more developments on this event. The company currently retains a Zacks #3 Rank (short-term Hold ranking).
Westport, Connecticut-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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