Terex Talks with Zoomlion Continue

February 3, 2016
Terex Talks with Zoomlion Continue

Zoomlion is China's second largest construction equipment manufacturer - sometimes referred to as the "Chinese Caterpillar" - is eager to expand its international presence as China's market shrinks with the country's slowing economy. Zoomlion's recent unsolicited offer to Terex corporation is the first time a Chinese construction company has openly tried to buy a US counterpart.

However, because Zoomlion is partially owned by China's Hunan province, the Committee on Foreign Investment in the United States (CFIUS), a US government agency that looks at deals that could pose potential security threats, has demonstrated concern regarding Chinese investments. It recently forced Phillips to abandon a $3.3 billion sale of its lighting business to a group backed by Chinese investors. Because Terex has priority-rated contracts with the U.S. government, an acquisition from a Chinese company could invite attention, as could the fact that Terex manufactures mobile cranes used in ports that are viewed as a critical part of U.S. infrastructure. Port equipment makes up about 11 percent of Terex sales according to the company's annual report.

Zoomlion's heavy debt levels would seemingly make the deal difficult to pursue but the possible backing of the Chinese state changes the equation, analysts say.

While Terex’s board has not said that it would abandon an agreed-upon merger with Finland’s Konecranes in favor of Zoomlion’s $3.3 billion unsolicited offer, it has not expressed concern about potential CFIUS attention. Terex has not commented on a potential deal with Zoomlion except to acknowledge that its board is discussing the proposal. Zoomlion offered $30 per share in cash for Terex, considerably more than Konecranes’ offer. Terex would have to pay Konecranes a $37 million termination fee under its merger agreement should its board change its recommendation on the transaction. The financial website Seeking Alpha said Terex has entered into a “confidentiality agreement with Zoomlion and is in discussions with Zoomlion regarding the proposal”.

According to a Reuters report, were Zoomlion to seek backing from the Chinese government to help finance a deal for Terex, CFIUS scrutiny would increase.

Source: Reuters; Seeking Alpha