When heavy equipment manufacturer Terex (NYSE: TEX ) needed a fresh boost of momentum, it reached across the Atlantic for a new lift from cranes.
Just over two years after grasping initial access to the container-port-equipment industry with the acquisition of Fantuzzi, Terex is now fighting for a major slice of that global market through its $1.31 billion hostile bid for German crane maker Demag.
Flush with cash following the sale of its mining equipment unit to Bucyrus, and the attractive return realized on its 5.8 million Bucyrus shares when Caterpillar (NYSE: CAT ) gobbled Bucyrus in turn, Terex possesses more-than-adequate liquidity to execute this all-cash deal.
Terex aims to build the world's leading port equipment manufacturer, but speculation is swirling that Finnish manufacturer Konecranes may be keen to launch a competing bid to protect and solidify its position as the world's top producer of industrial cranes. For Terex, Demag's industrial cranes segment -- which accounts for nearly half of Demag's revenue -- would give rise to a new business unit with strong potential to supply a growing manufacturing sector in emerging markets. Another feather in Terex's cap would come in the form of Demag's global network of crane maintenance services. Fools may recall that I viewed Fantuzzi's network of service branches and technicians as a key secondary target of that deal. Demag's services unit supplies approximately one-third of consolidated revenue.
Although Demag's port technology unit accounts for only about 20% of total sales, Terex has identified the segment as a key factor behind this strategic move. Clearly, Terex's bullish assessment of port equipment demand has not diminished since the Fantuzzi acquisition, and this Fool has observed resilient container traffic volumes even in the face of global economic headwinds.
Port operator APM Terminals presently has 16 new development or expansion projects under way. In the U.S., railroad hauler Norfolk Southern (NYSE: NSC ) recently reported a 10% increase year over year in intermodal traffic. Shippers themselves continue to reel from an epic oversupply condition -- a distress echoed in shares of container ship owners Danaos (NYSE: DAC ) and Seaspan (NYSE: SSW ) in recent years -- but the global order book has already shrunk by 30% (to 3.7 million TEUs) since I offered this discussion in September of 2009.
Terex shares have pulled back by 10% since I sensed a bit of overheating in the shares in mid-February, while competitor Manitowoc (NYSE: MTW ) has advanced during the period. Investors intrigued by this strategic bid will wish to monitor Demag for signs of diminishing speculation over a potential competing bid. Even then, I might suggest entering any investment here gradually, given the pervasive macroeconomic concerns confronting U.S. equity markets at present. For the long-term-oriented investor, and particularly if this hostile bid succeeds, Terex could be a fine choice to offer investors a lift.
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