Terex Goes on the Offensive

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With the United States committing boldly to a strategy of spending its way out of crisis, it appears that at least one manufacturing company will adopt the same approach.

Mere weeks after assailing investors with monumental losses and warnings about a potential breach of debt covenants, equipment maker Terex (NYSE: TEX  ) caught this Fool by surprise by announcing the resurrection of a previously quashed acquisition. We seemed to inhabit a different planet when Terex first proposed the acquisition of port equipment manufacturer Fantuzzi back in August 2008. The subsequent deterioration of Fantuzzi's business as the global financial crisis deepened led Terex to bench the transaction in December.

Terex's latest move is surprising, not only because of its company-specific challenges -- including about $1.4 billion in debt and a projected 30%-35% reduction in sales for 2009 -- but also given the massive headwinds and substantial uncertainty facing both the makers of equipment and their client industries.

In a poignant sign of the times, laid-off Caterpillar (NYSE: CAT  ) employees held executives captive overnight in a plant in France, protesting the terms of their severance. Providing an ultimate commodity update, Joy Global (Nasdaq: JOYG  ) has delivered a sobering near-term outlook for commodity demand. From drybulk shippers such as DryShips (Nasdaq: DRYS  ) struggling to stay afloat, to deteriorating construction material companies like USG (NYSE: USG  ) , all indications call for a very unfriendly business cycle for diversified manufacturers like Terex.

In addition to the challenges facing Terex, I'm not convinced the outlook for Fantuzzi's container-focused business is much better. For example, container traffic on North America's rail lines -- carried by the likes of CSX (NYSE: CSX  ) and Burlington Northern Santa Fe (NYSE: BNI  ) -- is off by double digits from year-ago levels. Containers typically carry consumer-sensitive goods, and the fiscal health of Western consumers has certainly taken a substantial hit.

I can offer only a handful of positive anecdotes from this perplexing deal. For one, the present 175-million-euro offer represents an 18.6% discount to the $215 million euro purchase price announced last summer. Thanks to exchange-rate fluctuations, the savings in U.S. dollars is even greater.

Fantuzzi is a major global player in container port equipment, and the acquisition should indeed boost Terex's global footprint in diverse equipment niches once recovery begins to take hold. With operations in China, Fantuzzi might just bring exposure in the right places. On the whole, though, given the questionable health of both the acquirer and the acquiree, Terex's latest move leaves this Fool skeptically cautious.

Further Foolishness:

Members of the Motley Fool CAPS community have given Terex the highest possible rating -- five stars -- with more than 1,300 members expecting the company to outperform the S&P 500. Join the free community today and tell us what you think.

USG is a Motley Fool Inside Value recommendation. The Fool owns shares of Terex. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Christopher Barker hopes Terex doesn't go the way of the T-Rex. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Caterpillar. You don't need a crane to lift The Motley Fool's disclosure policy.

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