Demag Rejects Terex Offer; May Have Talks

According to the Wall Street Journal, Demag Cranes AG said that Terex Corp.’s offer to purchase Demag disregarded the crane maker’s potential to significantly increase its sales and profit over the next five years.

Demag Chief Executive Aloysius Rauen said the German company’s management and supervisory boards unanimously rejected Terex’s unsolicited tender offer of EUR41.75 a share for Demag stock. In urging Demag investors against selling their shares to Terex, Rauen described the May 2 offer as “inadequate from a financial point of a view for Demag shareholders and not in the interest of the company.” Terex’s bid is worth up to EUR884 million, or $1.27 billion.

A Demag spokesman said, however, the company would be open to talks with the U.S. construction equipment manufacturer.

“We would objectively consider an offer to talk, and make a decision based on the attractiveness of that offer,” a spokesman for the German crane maker said.

Terex Chairman and Chief Executive Ron DeFeo has previously complained about the unwillingness of Demag’s executives to engage in talks about the sale of their company, insisting that Demag has repeatedly stonewalled Terex’s attempts to gather information for a more precise offer for Demag.

A Terex spokesman Tuesday declined to comment on Demag’s rejection of Terex’s offer or Demag’s implication that Terex hasn’t attempted to negotiate with Demag. “We stand by our previous statements and have nothing further to add,” he said.

During a presentation to analysts Tuesday, Rauen said Terex failed to take into account the sales and profit expansion that Demag expects by the middle of the decade. Demag make cranes and hoists used in factories and warehouses, as well as cranes used to load cargo at sea ports. The company predicted its annual revenue will reach EUR1.7 billion in fiscal year 2014-15, an 83% increase from 2010. Meanwhile, the company sees operating income quadrupling to about EUR225 million by 2014-15.

“Offer price does not adequately reflect the current positioning and growth prospects of the Demag Cranes, based on the company’s clear and successful strategy,” Rauen said during the conference call.

Demag is counting on capturing rising demand for cranes in developing countries like China, the world’s largest market for industrial cranes. Demag in January announced a minority stake in China’s largest industrial crane maker Weihua, with the intent of acquiring control of the company in the months ahead.

On Tuesday, Demag raised its guidance for the fiscal year ending Sept. 30. The company now sees sales of around EUR1.06 billion in its fiscal 2011, up from a previous forecast of EUR1.02 billion to EUR1.05 billion. It also said its margin on earnings before interest and taxes will be around 6.4%, at the upper end of a previous projection of 6.1% to 6.5%.

Analysts backed Demag’s assessment that Terex’s offer is too low. Thomas Rau from M.M. Warburg sees a fair value of at least EUR54 a share. Moreover, Rau sees the price rising to EUR60 a share for the company based on the Weihua partnership and potential large port-technology orders.

“It can catapult Demag Cranes into a totally new dimension,” he said about Weihua.

Demag closed up 0.37% at EUR45.72, while Terex ended at $29.65, up 2.07%.

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