Konecranes acquires Terex’s Material Handling & Port Solutions business to create a focused global leader in Industrial Lifting & Port Solutions
The Stock and Asset Purchase Agreement may be terminated by Terex prior to May 31, 2016, if it enters into, or reasonably believes that it will promptly enter into a legally binding merger agreement with Zoomlion Heavy Industries Science & Technology Co., Ltd., in which case, it will compensate Konecranes with a termination fee of USD 37 million.
Transaction terms
The Acquisition, valued at EUR 1,126 million enterprise value based on Konecranes closing price of EUR 20.60 as of May 13, 2016 on a cash and debt free basis, will bring together a range of leading brands and offer significant industrial and operational synergies targeted at EUR 140 million p.a. at EBIT level within three years from closing. Terex will receive USD 820 million (EUR 723 million) in cash and 19.6 million newly issued Konecranes class B shares, making Terex a 25% shareholder (calculated from shares outstanding on April 30, 2016). The class B Shares to be issued to Terex will be created through an amendment to Konecranes' Articles of Association and will have the same financial rights as Konecranes ordinary shares but are subject to voting and transfer restrictions as well as differing Board nomination rights described in more detail below and in Appendix 1. The purchase price is subject to post completion adjustments based upon the level of net working capital and cash and debt in the acquired business at the closing date. In addition, the number of shares to be issued may be adjusted depending on the performance of the MHPS business in 2016. Also, certain purchase price adjustments may occur based on possible outcomes related to antitrust rulings. (A summary of the transaction terms is included in Appendix 1.)
The agreed purchase price represents a multiple of 10.5x enterprise value / 2015 adjusted EBITDA used for valuation purposes, and of 5.3x including run-rate synergies (enterprise value adjusted for EUR 190 million expected implementation costs and capex). With the transaction, Konecranes assumes certain unfunded pension liabilities. (See Appendix 3: 2015 adjusted EBITDA used for valuation purposes and Appendix 1: Summary of the transaction terms.)
As part of the transaction, Konecranes’ articles of association will be amended to create the new class of B shares and Terex and Konecranes will enter into a shareholder’s agreement ("SHA"). Pursuant to the SHA and changed articles of association, Terex will be entitled to nominate up to two members to the Board of Directors of Konecranes as long as Terex’s or its group companies' shareholding in Konecranes exceeds certain agreed thresholds. Terex's initial Board nominees will be David Sachs and Oren Shaffer as of closing of the Acquisition. Terex will also be subject to certain standstill obligations for a four-year period, as well as more limited standstill obligations following the initial four-year period, and a non-compete obligation with respect to the MHPS business for a two-year period.
The Acquisition is subject to regulatory approvals and other closing conditions, including shareholder approval at a Konecranes Extraordinary General Meeting of shareholders, and is expected to close in early of 2017. If the Konecranes shareholder approval is not obtained, Konecranes will be required to compensate Terex's transaction expenses up to USD 20 million.
As a result of entering into the Stock and Asset Purchase Agreement, the companies terminate the Business Combination Agreement and Plan of Merger announced on August 11, 2015, with no penalties incurred by either party.
Konecranes has agreed to seek listing of American Depositary Shares representing its ordinary shares, on the New York Stock Exchange after the completion of the Acquisition.
Overview of Terex MHPS
Terex MHPS is a leading supplier of industrial cranes, crane components and services under the Demag brand, as well as port technology with a broad range of manual, semi-automated and automated solutions under several brands such as Gottwald. Customers use these products for lifting and material handling in manufacturing and at port and rail facilities. Terex MHPS has manufacturing operations in 16 countries on five continents and operates a sales and service network in more than 60 countries. It has a 50% interest in a Singapore-based joint venture that manufactures industrial cranes in eight locations around the world. Terex MHPS is one of the five segments of Terex Corporation.
According to unaudited special purpose carve-out financial information, sales of Terex MHPS (including Crane America Services) were USD 1,542 million (EUR 1,391 million) and the adjusted EBITDA was USD 111 million (EUR 100 million) in 2015. In 2015, Terex MHPS generated 31% of its sales from maintenance services and spare parts. It employs approximately 7,200 people of which approximately 1,700 are in aftermarket operations. (For further financial information, see Preliminary unaudited combined financial information, included in Appendix 2.)
Industrial Rationale
With the Acquisition, Konecranes will:
-
Add critical mass and scope to its global service organization
- Enlarged combined installed base provides broader opportunities to offer service capabilities
- Major earnings potential from digitalization of services
- Combination of strong service networks and concepts creates critical mass to unlock the significant in-house service market
-
Reach scale benefits and synergies in industrial lifting
- Optimization of manufacturing footprint enables necessary production cost savings
- Scale benefits in sourcing
- New manufacturing platform positions Konecranes for future market growth
-
Combine complementary Port segment technological and marketing capabilities into complete product offering to better compete in global markets
- Ability to offer comprehensive port solutions to global customers
- Highly complementary range of products
- Enhances further strategic customer dialogue
-
Create a truly global footprint through the combination of complementary geographic presence
- Konecranes' presence in Northern Europe, North America and China vs. Terex MHPS' presence in Germany, Southern Europe, South America and Southeast Asia improve ability to serve global customers
- Critical mass in emerging markets
-
Create critical mass for future technology development
- Industry-leading resources for continued technology development, including automation, software and digitalization
- Technology leadership of increasingly critical importance
- Significant scale benefits enhance R&D efficiency
- Combination benefits from technology development heritage of both businesses
-
Leverage IT infrastructure
- Significant investments already made in IT infrastructure enable seamless integration
- Continuous development and high scalability support future growth
Christoph Vitzthum, Chairman of the Board of Konecranes, said: “For Konecranes, this Acquisition is a milestone in building our future. The Acquisition makes it possible for us to realize a long list of synergies and we expect it to create substantial value for our customers and shareholders.”
Panu Routila, President and CEO of Konecranes, commented: “This Acquisition will prove crucial to improving our position as a global partner in services, industrial lifting and port solutions, and at the same time create significant value for our owners. The combination of our businesses brings together a family of leading brands that will provide an excellent platform for further sustained growth, opens new growth opportunities in the service business and creates critical mass for future technology development. Furthermore, the Acquisition allows us to combine the outstanding talent and best practices that each of Konecranes and MHPS have to offer. We already have extensive experience in maintaining Terex MHPS equipment, and are convinced that the complementary range of equipment and differences in geographical footprint will make Konecranes and MHPS an ideal match.”
Synergies
Konecranes is prepared to deliver expected synergies on an accelerated timeline based on its in-depth review of the synergy opportunity and the extensive integration planning work carried out jointly with Terex over recent months. Of the total of EUR 140 million p.a. synergies targeted within three years, EUR 35 million is expected to be captured within 12 months from closing of the Acquisition. Overall, synergies will come from procurement, including supply chain optimization, insourcing/outsourcing and freight and logistics efficiency. Another significant contribution to synergies will be made from operations, including manufacturing footprint and capacity utilization. A third source of synergies will be SG&A, including broader SG&A efficiencies, IT system consolidation and engineering and R&D optimization. One-time implementation expenses are expected to be EUR 130 million, with EUR 60 million of capex expected.
In addition, dynamic synergies related to new opportunities in global service operations are expected to lead to significant earnings growth.
Financing
Konecranes is well-equipped financially to successfully consummate this transaction and to deliver its benefits. Upon completion of the Acquisition, Konecranes will have a sustainable capital structure with expected leverage of 3.5x net financial debt/EBITDA (aggregated adjusted EBITDA). The company targets to reduce its leverage to less than 2.0x within three years after completion of the Acquisition. Nordea and SEB have arranged committed financing for the cash consideration, replacement of existing facilities and net working capital of the combined entity. The transaction is expected to be EPS accretive from inception (adjusted for non-recurring integration costs and purchase price allocation related amortization).
Konecranes’ financial guidance for 2016 published in the January-March 2016 interim report on April 27, 2016, does not incorporate the impact of the now disclosed acquisition on the company’s sales or adjusted operating profit for 2016. Potential implications on Konecranes’ financial guidance for 2016 will be announced later when a reasoned estimate can be made.
Analyst and press conference:
Konecrances’ President and CEO, Panu Routila, will host a press conference to discuss the transaction today at 11:00 am EET at Finlandia Hall’s Terassisali (main building, 1st floor, door M4 or K4), Mannerheimintie 13 E, 00100 Helsinki. The press conference will be streamed live at http://goodmood.fi/webcaster/accounts/konecranes/live/.
The conference can also be joined by telephone. Please dial in 5 to 10 minutes before the beginning of the event:
Finland: +358(0)9 2310 1619
US: +1646 254 3387
UK: +44(0)20 3427 1921
Germany: +49(0)69 2222 10632
France: +33(0)1 76 77 22 41
Event title: Press Conference
Conference id: 4978993
The presentation slides will be available at www.konecranes.com/investors
Further information:
Mr. Christoph Vitzthum, Chairman of the Board
Dr. Stig Gustavson, Vice Chairman of the Board
Mr. Panu Routila, President and CEO
Call-back requests, tel. +358 40 198 9978
Advisors
Nordea, Perella Weinberg Partners and SEB are serving as financial advisors to Konecranes. Nordea and SEB are providing debt financing to Konecranes. Skadden, Arps, Slate, Meagher & Flom LLP and Roschier, Attorneys Ltd. are providing legal counsel to Konecranes.
About Konecranes
Konecranes is a world-leading group of Lifting Businesses™, serving a broad range of customers, including manufacturing and process industries, shipyards, ports and terminals. Konecranes provides productivity-enhancing lifting solutions as well as services for lifting equipment and machine tools of all makes. In 2015, Group sales totaled EUR 2,126 million. The Group has 11,600 employees at 600 locations in 48 countries. Konecranes is listed on Nasdaq Helsinki (symbol: KCR1V).
FORWARD LOOKING STATEMENTS
This stock exchange release contains forward-looking statements regarding future events, including statements regarding Konecranes, Terex or MHPS, the Acquisition described in this stock exchange release and the expected benefits of such transaction and future financial performance of the combined businesses of Konecranes and MHPS based on current expectations. These statements involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. When included in this document, the words “may”, “expects”, “intends”, “anticipates”, “plans”, “wants”, “will”, “projects”, “estimates” and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean that the statement is not forward-looking. Terex and Konecranes have based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance.
Because forward-looking statements involve risks and uncertainties, actual results could differ materially. Such risks and uncertainties, many of which are beyond the control of Konecranes, include, among others: Konecranes’ ability to obtain shareholder approval for the Acquisition and the required amendments to the Konecranes’ articles of association; the ability of Konecranes to obtain regulatory approval for the Acquisition; Konecranes’ ability to issue class B shares and list American Depositary Shares on the New York Stock Exchange; the total consideration to be paid by Konecranes to Terex in connection with the Acquisition; the possibility that the length of time required to complete the Acquisition will be longer than anticipated; the ability of Konecranes and Terex to enter into other agreements in connection with the Acquisition, including the SHA; the achievement of the expected synergies and benefits of the Acquisition; risks associated with the integration of the MHPS business into Konecranes; the ability of Konecranes and Terex to terminate the Stock and Asset Purchase Agreement under certain circumstances; the possibility that Konecranes’ businesses may suffer as a result of uncertainty surrounding the Acquisition; Konecranes’ ability to obtain financing for the Acquisition; Konecranes’ financial position after the Acquisition; and other factors, risks and uncertainties that are more specifically set forth in Konecranes’ annual and interim reports. Konecranes disclaims any obligation to update the forward-looking statements contained herein.
APPENDIX 1: SUMMARY OF THE TRANSACTION TERMS
Konecranes will purchase from Terex the MHPS business in accordance with the terms and conditions of the Stock and Asset Purchase Agreement on a cash and debt free basis in exchange for USD 820 million (EUR 723 million) in cash and 19.6 million newly issued class B shares of Konecranes. With the transaction, Konecranes assumes approximately EUR 202 million of unfunded pension liabilities.
Konecranes and Terex have agreed that the purchase price will be adjusted based on the actual 2016 MHPS adjusted EBITDA. If the 2016 adjusted EBITDA is within the range of +/- USD 20 million from the 2015 adjusted EBITDA, no adjustments will be made to the purchase price. If the 2016 adjusted EBITDA is more than USD 20 million below the 2015 adjusted EBITDA and Konecranes 2016 adjusted EBIT is equal or higher than certain level, the purchase price will be reduced with 10x the shortfall exceeding USD 20 million. If the 2016 adj. EBITDA is more than USD 20 million above the 2015 adjusted EBITDA, the purchase price will be increased with 10x the excess exceeding USD 20 million. The purchase price adjustment will be effected by adjusting the number of Konecranes shares issued to Terex and only to the extent that Terex’ ownership in Konecranes remains between 20.5% and 29.5%.
Konecranes and Terex have agreed that if for antitrust reasons Konecranes is required to dispose any assets, the purchase price will be adjusted with 7x EBITDA generated by the disposed assets in excess of EBITDA of USD 20 million. The parties will share any divestiture proceeds as follows: Terex receives up to 7x EBITDA in excess of USD 20 million and Konecranes retains all proceeds above the threshold of 7x. Both parties may terminate the Stock and Asset Purchase Agreement if the EBITDA generated by the disposed assets exceeds certain levels.
The completion of the Acquisition is subject to, inter alia, approval and authorization by Konecranes shareholders, receipt of regulatory approvals in the relevant jurisdictions, entry into certain other agreements between Konecranes and Terex the key terms of which have been agreed in connection with the Stock and Asset Purchase Agreement, and to other customary conditions.
The Stock and Asset Purchase Agreement contains certain customary representations and warranties both by Terex and by Konecranes concerning their respective organizations and businesses. The Stock and Asset Purchase Agreement also includes undertakings by Konecranes and Terex that are typical in similar transactions and include e.g. undertakings by both Konecranes and Terex to conduct their businesses in the ordinary course before the completion of the Acquisition and to cooperate in making the necessary regulatory filings. Terex has granted to Konecranes and Konecranes has granted to Terex an indemnity for certain qualified breaches of the representations, warranties and undertakings described above.
The Board of Directors of Konecranes has undertaken to issue, and not to withdraw or modify, a recommendation to Konecranes' shareholders to approve and authorize the amendment of the Articles of Association in order to create the new class of B shares, and to authorize the Board of Directors to issue the share consideration to Terex. If the Konecranes shareholders do not approve the amendment of Konecranes' Articles of Association and authorize the issuance of B shares described above Konecranes may be required to pay Terex's transaction expenses up to USD 20 million.
The Stock and Asset Purchase Agreement may be terminated under certain circumstances. Terex may terminate the Stock and Asset Purchase Agreement prior to May 31, 2016, if Terex enters into, or reasonably believes that it will promptly enter into a legally binding merger agreement with Zoomlion Heavy Industries Science & Technology Co., Ltd., in which case, Terex would be required to pay to Konecranes a termination fee of USD 37 million. Other circumstances for termination include, for example, a material breach by either party of the terms and conditions of the Stock and Asset Purchase Agreement, non-receipt of regulatory approvals or Konecranes shareholder approval, and antitrust remedies in excess of certain levels.
Articles of Association and B shares
The Articles of Association of Konecranes are proposed to be amended to create a new class of B shares to be issued to Terex. As long as Terex owns class B shares, any further amendment of the Articles of Association relating to class B shares will require the consent of Terex. The class B shares will not be listed on any regulated market and will be subject to a consent clause limiting their transferability. The new Articles of Association and the SHA between Terex and Konecranes will set out the circumstances under which B shares may be converted into Konecranes ordinary shares and/or transferred. Konecranes will also have the right under the SHA to cause Terex to distribute or otherwise transfer all Konecranes shares held by Terex to Terex's shareholders in case of a change of control in Terex.
Under the new Articles of Association, Terex will be entitled to nominate up to two members to the Board of Directors of Konecranes until such time as Terex’s or its group companies' shareholding in Konecranes has reduced below certain agreed thresholds. Terex will also have the right under certain circumstances to restore its proportionate ownership in Konecranes if it falls below any of the thresholds affecting its appointment rights and defer the applicable Board member's resignation from the Board. The appointment right will cease upon the occurrence of a change of control in Terex.
Class B shares will have the same financial rights as Konecranes ordinary shares but will carry no voting rights in certain matters and circumstances, which principally include the election of and other matters relating to the appointment of Board members other than those appointed by Terex under its specific appointment rights, as well as share issuances pursuant to preemptive subscription rights of shareholders.
As long as Konecranes has any outstanding class B shares, if Terex acquires or otherwise comes to own Konecranes ordinary shares (other than in connection with a permitted conversion and transfer of B shares), any such Konecranes ordinary shares held by Terex will be converted into B shares. All conversions of class B shares into ordinary shares and vice versa will be made on a one-to-one conversion ratio.
APPENDIX 2: PRELIMINARY UNAUDITED COMBINED FINANCIAL INFORMATION
Basis for preparation
The combined financial information is for illustrative purposes only. The combined financial information gives an indication of the combined company's sales and earnings assuming the activities were included in the same company from the beginning of the last financial year. The combined financial information is based on a hypothetical situation and should not be viewed as pro forma financial information as purchase price allocation, transaction costs and differences in accounting principles have not been taken into account.
The unaudited combined financial information presented below is based on Konecranes Group’s financial statements for the financial year 2015 (adjusted for restructuring costs, transaction costs related to the proposed merger with Terex and unwarranted payments due to identity theft and fraudulent actions) according to IFRS and Terex MHPS segment and Crane America Services (MHPS) unaudited special purpose carve-out financial information for the financial year 2015 (adjusted for non-recurring items such as restructuring costs and impairments of goodwill and trademarks) according to USGAAP. The corporation allocations of Terex Group, internal financial expenses as well as taxes have been adjusted in MHPS income statement to illustrate the situation as the Group had been combined at the beginning of 2015. Financing costs of the combined Group have been estimated according to the financing arrangement of the transaction as if the transaction has taken place at the beginning of 2015. The difference between preliminary consideration to be transferred and MHPS carve-out net assets has been allocated to non-current assets on the illustrative combined balance sheet. The possible amortization from intangible assets due to purchase price allocation are not included in the combined income statement as the purchase price allocation has not been prepared. MHPS financial information include the existing amortization arising from purchase price allocations for earlier acquisitions.
For the purpose of this illustrative combined financial information, the preliminary consideration to be transferred has been assumed to be financed by issuing new shares to Terex (to reach 25% ownership of Konecranes) with the May 13, 2016, closing share price of 20.60 EUR per share as well as by taking 820 MUSD loan. The effects of the planned financing have been taken into account in the illustrative balance sheet information and in the income statement.
MHPS's income statement have been converted into EUR using the average EUR/USD exchange of 2015 (1.1090) and balance sheet information using the EUR/USD exchange rate as at 31 December 2015 (1.0887).
For the purposes of financial reporting, the actual consolidated financial statements of Konecranes will, however, be calculated based on the consideration transferred and the fair values of MHPS's identifiable assets and liabilities at the closing date and as a result, the consolidated income statement will reflect the amortization and depreciation charges of the acquired assets recognized at fair value. Balance sheet items could therefore differ significantly from the combined financial information presented below and, as a result, have a significant impact on other items included in the income statement of the combined company. As such, the preliminary combined financial information presented below is not necessarily indicative of future results of operations or financial position of Konecranes.
Further, the financial information for MHPS has been prepared on a “carve-out” basis and it does not necessarily reflect what its combined results of operations and financial position of MHPS would have been, had MHPS operated as an independent group and had it presented stand-alone financial information under IFRS during the period presented. Moreover, the carve-out financial information may not be indicative of MHPS’s future performance of the operative activities aggregated within Konecranes.
Combined statement of income for illustrative purposes. No adjustments made to align the accounting principles.
|
2015 |
|||
|
EUR million |
Combined Company |
Konecranes |
MHPS EUR Adjusted |
|
Net Sales |
3,517.0 |
2,126.2 |
1,390.8 |
|
EBITDA |
266.8 |
166.5 |
100.3 |
|
D&A |
(99.1) |
(48.7) |
(50.4) |
|
EBIT |
167.7 |
117.7 |
49.9 |
|
Associated company result |
11.1 |
4.8 |
6.3 |
|
Financial items |
(60.0) |
(12.5) |
(6.9) |
|
Profit before taxes |
118.8 |
110.1 |
49.4 |
|
Taxes |
(47.7) |
(41.0) |
(14.8) |
|
Non-controlling interest |
(3.0) |
- |
(3.0) |
|
Net Income |
68.1 |
69.1 |
31.6 |
Combined balance sheet for illustrative purposes. No adjustments made to align the accounting principles.
|
31.12.2015 |
|||
|
EUR million |
Combined Company |
Konecranes |
MHPS EUR Adjusted |
|
Non-current assets |
1,812.9 |
505.7 |
1,050.0 |
|
Inventories |
716.2 |
365.2 |
350.9 |
|
Other current assets |
776.7 |
533.2 |
243.5 |
|
Cash |
80.8 |
80.8 |
- |
|
Total Assets |
3,386.5 |
1,484.9 |
1,644.5 |
|
Total Equity |
859.4 |
456.0 |
899.5 |
|
Non-current liabilities |
1,253.3 |
189.1 |
311.0 |
|
Current liabilities |
1,273.8 |
839.8 |
433.9 |
|
Total Equity and Liabilities |
3,386.5 |
1,484.9 |
1,644.5 |
APPENDIX 3: 2015 ADJUSTED EBITDA USED FOR VALUATION PURPOSES
For valuation multiples used in this document, Konecranes has used MHPS adjusted EBITDA of USD 119 million (EUR 107 million) for 2015. The difference between the 2015 adjusted EBITDA used for valuation purposes and the 2015 adjusted EBITDA presented in Appendix 2 is related to the share of the result of the 50%-owned Singapore-based joint venture, stock compensation, non-controlling interest and changes in certain provisions.
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