Konecranes and Terex to Form Leading Global Lifting and Material Handling Solutions Company Through an All-Stock Merger of Equals

Konecranes Plc and Terex Corporation announced today that their respective Boards of Directors have unanimously approved a definitive agreement to combine their businesses in a merger of equals. The combined company, to be called Konecranes Terex Plc, will be a leading global Lifting and Material Handling Solutions Company with estimated combined 2014 revenues and EBITDA of €7.5/$10.0 billion and €636/$845 million. (For basis of preparation see Appendix 2.)

 Under the agreement, Terex shareholders will receive 0.80 Konecranes shares for each existing Terex share (“Exchange Ratio”). Equivalent terms will apply to instruments granted under Terex’ long-term incentive plans. Upon closing of the transaction, based on current fully diluted shares outstanding, Terex shareholders will own approximately 60% and Konecranes shareholders will own approximately 40% of the combined company.

The agreed Exchange Ratio is consistent with the average share-price implied exchange ratios over the past 3 and 6 months of 0.7921 and 0.7933 respectively. Based on the closing share prices and fully diluted shares outstanding as of August 7, 2015, the last trading day before the Board of Directors’ approval of the transaction, the Exchange Ratio implies a value of Terex shareholders’ resulting share in Konecranes Terex of €2.3/$2.5 billion and a premium to the fully diluted market value of Terex as of the same date of 7.7%.

The combined company is planned to be listed on Nasdaq Helsinki and New York Stock Exchange. The transaction is expected to be accretive to both companies’ shareholders in the first full year after closing.

Highly Complementary Businesses and Geographic Profiles

The combination will bring together complementary leaders in lifting, materials handling, and equipment servicing solutions. Konecranes Terex will be parent to a family of leading brands with global leadership positions in the Industrial Lifting, Port Solutions, Aerial Work Platforms, Materials Processing and Cranes categories. The combined company will be able to offer comprehensive solutions to customers worldwide based on a highly complementary product portfolio.

Konecranes Terex will have the critical scale to continue to drive technology innovation and provide customers with an industry-leading service offering. The combined company is expected to create enhanced shareholder value through:

• Increased global scale with enhanced ability to remain competitive via-a-vis intensifying global, in particularly low-cost emerging market competition

• Broader presence in key sectors with greater opportunity to capitalize on growth trends, especially in Industrial Lifting and Port Solutions

• Creation of a global service organization of critical mass and scope

• More robust portfolio of complementary products and customer solutions

• Significant operational and financial synergies

• Strong balance sheet and cash flow generation to support growth and return of capital to shareholders.

Stig Gustavson, Chairman of the Board of Konecranes, said, “The combination of Konecranes and Terex is a defining step in the history of both companies.  With a focus on Lifting and Material Handling solutions, Konecranes Terex will be in an excellent position to deliver enhanced growth in revenues and margins through several strategic advantages, including significant cross-selling opportunities. There is a common culture between the two organizations, with both companies having long histories of designing competitive and innovative solutions. Together, we will have the opportunity to expand what Konecranes and Terex have built and become even stronger in the future.”

Terex CEO, Ron DeFeo, added: “This merger brings together two great businesses and through synergies provides another lever that is within our control to deliver value-creation to both the shareholders of Terex and Konecranes. We have a deep respect for Konecranes and look forward to joining forces with them to build a stronger and more diverse company that will be in an excellent position to succeed in a dynamic and highly competitive global industry.”

Significant Synergies Create Strong Upside Potential for Shareholders

The parties target that in the mid-term, Konecranes Terex would deliver significant profitability upside based on expected market growth, internal profitability initiatives already implemented and synergies resulting from the merger. Based on Konecranes’ and Terex’ internal mid-term outlooks and the combination of the above expectations, the parties would seek to achieve revenue growth of more than 10% and operating profit increase of significantly more than 50% (in each case on a € basis) for Konecranes Terex within three to four years from closing compared to 2014.

The combined company expects to achieve at least €110/$121 million of annual pre-tax cost synergies from procurement savings, optimization of operations as well as selling, general and administrative efficiencies. In addition, Konecranes Terex anticipates to realize post-tax income enhancement from financing, cash management and structure optimization of at least €32/$35 million annually. In total, these synergies are expected to result in €109/$119 million of annual net income benefits to be fully implemented within 3 years from closing.  Procurement savings are expected to contribute ca. 30% of the net income benefit, operational optimization ca. 20%, selling, general and administrative efficiencies ca. 20% and financing, cash management and structure optimization ca. 30%. Ca. €58/$63 million of the total benefits are expected to be implemented within 12 months from closing. The company expects to incur approximately €110/$121 million in related one-time costs over the first 24 months after closing to achieve the synergies.

The combined company will have a solid capital structure and the ability to generate strong cash flow and shareholder returns. It would seek to achieve free cash flow generation of approximately €2.6/$2.8 billion (Free cash flow defined as EBITDA – Capex) from 2016 to 2018.  The joint intention of Konecranes and Terex is to execute a share buy-back program post closing of up to €1.4/$1.5 billion, split between ca. €456/$500 million as soon as possible after closing and up to an additional €0.9/$1.0 billion executed within 24 months after closing. 

The dividend policy for the combined company will be set by the Board after closing. However, given the enhanced growth profile of the combined business, it is expected that the combined company will maintain the current annual dividend paid by Konecranes of €1.05/$1.15/ share, in addition to the return of capital through buy-backs. The combined company’s intention is to strengthen the balance sheet of the new entity over time.

Governance and Management 

Upon closing of the transaction, the combined company is planned to have a Board of Directors comprising nine members, of which five Directors will be nominated by Terex and four Directors by Konecranes. Konecranes’ current Chairman of the Board will become Konecranes Terex’ Chairman and the Terex CEO will become Konecranes Terex’ CEO. Should Terex determine to appoint a new CEO before the completion of the transaction, the parties have agreed to do this in close collaboration between the Boards of Directors of Terex and Konecranes.

The combined company will maintain headquarters in Hyvinkää, Finland as well as Westport, Connecticut, USA. Following closing of the transaction, the combined entity is expected to have approximately 32,000 employees worldwide.

Approvals and Timing

The transaction is subject to approval by both Terex and Konecranes shareholders, regulatory approvals and other closing conditions as further described in Appendix 1. Konecranes and Terex expect to convene general meetings of their shareholders to approve the transaction in early 2016. Closing of the transaction is expected to occur during the first half of 2016.

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