Konecranes and Kito Corporation enter into strategic alliance

Konecranes and the Japanese hoist, crane and material handling equipment company Kito Corporation (“Kito”) which wholly owns Harrington Hoists have entered into a strategic alliance. The alliance agreement was signed by representatives of the two companies today on March 23, 2010. To reinforce the alliance, Konecranes has entered into an agreement to purchase 22% of the share capital in Kito from the international private equity firm The Carlyle Group. To fully utilize the global market potential and mutually complement each other, Konecranes will enter into an agreement to sell Kito manual products while Kito will sell wire rope hoists made by Konecranes. Moreover, the parties will jointly examine the possibilities to co-operate in distribution and license manufacturing of other products as well as in procurement. In addition, Konecranes and Kito intend to transfer the hoist distribution business of Konecranes’ Japanese joint venture MHS Konecranes Co. Ltd (“MHS Konecranes”) to Kito to create a strong player in the Japanese hoist market. Both companies will retain their own identity and independence under this alliance based on mutual trust and equal partnership.

The strategic alliance is based on the understanding that the resources of the two groups will complement each other and will contribute to each company’s further growth in the global market. The benefits of the alliance include cross-distribution of complementary products, wider regional coverage, license manufacturing, and possibly procurement. Under the alliance agreement, the parties have agreed to negotiate definitive distribution and license agreements by the end of June 2010. Konecranes and Kito have further affirmed to continue to pursue their own growth strategies and retain their independence based on the mutual respect of each other.

To reinforce the strategic alliance, Konecranes has entered into an agreement to purchase 29,750 shares (22.0% of the share capital and voting rights as of today) in Kito through negotiated transaction from funds controlled by The Carlyle Group (Carlyle Japan Partners, L.P. 28,147 shares (20.81%) at JPY 111,800 and CJP Co-Investment, L.P. 1,603 shares (1.19%) at JPY 111,800). The purchase price for the shares in Kito is JPY 111,800 per share and the settlement date is March 24, 2010. The total value of the stake purchased amounts to approximately JPY 3.3 billion (EUR 27 million). The purchase will be financed with existing cash reserves.

The Carlyle Group will participate in a share buyback in Kito for an additional 10% of the Kito share capital. Post the share purchase by Konecranes and the Kito share buyback, Konecranes will have approximately 24.4% of the voting rights in Kito.

”This alliance will strengthen both companies on the global crane and hoist market and support further profitable growth and market leadership. The alliance will enable both companies to expand their product offering as well as to improve competitiveness and customer service.” says Pekka Lundmark, President and CEO of Konecranes.

“We are very pleased and hopeful with this alliance, which is based on mutual respect and equal partnership. Through this alliance, we together with Konecranes will enhance our market leadership and accelerate our profitable growth by mutual complements in product offering, manufacturing, sales network and customer service.” says Yoshio Kito, President and CEO of Kito.

Kito, founded in 1932, is a Japanese supplier of hoists, cranes and equipment for material handling the shares of which are listed on the Tokyo Stock Exchange. Kito serves customers worldwide, with particular emphasis on Japan, North America and China. Overall, Kito has subsidiaries and sales agents in over 50 countries. Kito is a clear market leader for manual and electric chain hoists in Japan. Kito’s chain hoists and lever hoists have earned a reputation for excellence around the world.

For the year ended March 31, 2008, Kito’s net sales amounted to JPY 36,961 million (EUR 229 million) and operating profit to JPY 5,408 million (EUR 33.5 million). For the year ended March 31, 2009, Kito’s net sales amounted to JPY 32,605 million (EUR 227 million) and operating profit to JPY 2,366 million (EUR 16.5 million). For the year ending March 31, 2010, Kito forecasts net sales of JPY 24,500 million (EUR 187 million) and operating profit of JPY 700 million (EUR 5.3 million). Kito had a positive net cash position on December 31, 2009. Kito has approximately 1,500 employees. The manufacturing sites are located in Japan, China and the Philippines.

Kito will be included in Konecranes’ financial reporting as an associated company in proportion to the shareholding.

The strategic alliance will offer several benefits to both Konecranes and Kito:

– The two companies’ product offering will complement each other. Under the contemplated distribution agreements, Konecranes will receive the non-exclusive right to sell Kito manual products (chain hoists and lever hoists) using the Konecranes brands. Similarly, Kito will non-exclusively sell wire rope hoists made by Konecranes under its own brands. The parties will also examine possibilities to expand the distribution co-operation to other products at a later stage.

– By making effective use of each other’s regional networks, the two companies expect to further expand their geographic presence. Konecranes plans to utilize Kito’s distribution network to increase its sales in East Asia and North America. Similarly, Kito plans to increase its sales through the Konecranes distribution network in areas that currently account for a relatively small share of sales, particularly Europe.

– Konecranes and Kito will examine the feasibility of joint procurement activities. In addition, the two companies plan to start supplying each other with equipment parts by utilizing the best expertise of the respective companies.

These benefits are not expected to have a material impact on Konecranes’ net sales and operating profit in 2010.

As part of the strategic alliance, Konecranes and Kito have signed a Memorandum of Understanding according to which Konecranes intends to sell the hoist distribution business of its Japanese subsidiary MHS Konecranes to Kito. After the sale, Konecranes will continue its end-user customer business in Japan as a supplier of cranes and crane service to local customers. Prior to the final agreement, Konecranes intends to increase its ownership in MHS Konecranes to 100% by acquiring the remaining 35% stake from Meidensha Corporation. Transferring the hoist distribution business of MHS Konecranes to the operations of Kito will create a strong player in the Japanese hoist market with good growth prospects based on market-leading hoisting technology. Konecranes and Kito aim to transfer the hoist distribution business of MHS Konecranes by no later than July 2010.

For further information on Kito, please also visit: http://www.kito.co.jp/index-en.html

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