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Konecranes and Cargotec announce merger agreement

Konecranes Plc and Cargotec Corporation have announced in Helsinki that their respective Boards of Directors have today signed a combination agreement and a merger plan to combine the two companies through a merger.

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Konecranes and Cargotec announce merger agreement

Konecranes Noell and Kalmar together dominate the straddle carrier market. Would a merged company play into ZPMC’s hands as the only credible alternative?

 

The implications of this proposed mega-merger of two cargo handling equipment giants are enormous and will take time to digest. The companies compete in practically all cargo handling equipment fields, so what this means for products going forward, factory production sites, employees, distribution companies, dealers and of course customers cannot be underestimated.

 

Cargotec’s Hiab and MacGregor portfolios and Konecranes industrial cranes and hoists and bulk cranes and unloaders segments are the only non-competing lines.

 

The two companies are roughly equal in size and value and the intention of the merger is 50:50.

 

They do not compete in mobile harbour cranes (Konecranes Gottwald) or terminal tractors (Kalmar and Kalmar Ottawa), although in some markets Konecranes shares distributorships with Terberg.

 

In the container handling field, neither is particularly ‘big’ in STS container cranes, where they bid very selectively, but they are leaders in the RTG, ARTG and ARMG fields. They are separately the world’s biggest straddle carrier and shuttle carrier suppliers and between them the biggest suppliers of reach stackers and ECH mast trucks, and they both offer integrated terminal automation solutions.

 

At this stage it seems that the new merged company will not include Navis. Separately today Cargotec has issued a market announcement stating that it has decided "to continue to evaluate strategic alternatives for its Navis business to identify the best options to support future development of Navis".

 

Cargotec had earlier paused this process " due to the coronavirus pandemic", but it is again looking for a buyer (though of course a sale is not a certainty).

 

The proposed merger also has a much wider focus. As materials handling across different sectors moves deeper into automation, technology is too expensive to develop for container handling alone. The merged company wants to be a ‘lifecycle partner’ for its customers, and the connectivity, software and services that requires can be shared across products and customers in different sectors.

 

The joint statement from Helsinki said: “The Future Company will be a customer-focused global leader in sustainable material flow. The Future Company’s illustrative combined annual sales is approximately €7.0B and comparable operating profit approximately €565M based on fiscal year 2019.

 

“The Future Company is well positioned to lead the industry shift towards increased sustainability based on intelligent solutions, by being a lifecycle partner for its customers and prioritizing safety in all its activities.

 

“The Future Company can unlock significant value for its stakeholders by being the lifecycle partner for its customers, solving the sustainability challenge through innovation, positioning itself well to grow in material flow and by creating and combining a team of top global talent.

 

“The Future Company initially aims to achieve a comparable operating profit in excess of 10%, supported by synergies expected to be approximately €100M annually that are expected to be achieved in full within 3 years from the completion.

 

“The Future Company is well positioned to lead the industry shift towards increased sustainability based on intelligent solutions, by being a lifecycle partner for its customers and prioritizing safety in all its activities.

 

“Where the €100M axe will fall is not clear - R&D, lifecycle services (port service companies) and administration are obvious candidates.

This chart of the merger process was released by the parties in Helsinki
This chart of the merger process was released by the parties in Helsinki

It is proposed that the Board of Directors of the Future Company will include four directors from the current Board of Directors of Konecranes (Christoph Vitzthum, Janina Kugel, Ulf Liljedahl and Niko Mokkila) and four directors from the current Board of Directors of Cargotec (Tapio Hakakari, Ilkka Herlin, Kaisa Olkkonen and Teuvo Salminen).

 

It is proposed that the Future Company’s Chairman will be Christoph Vitzthum.The President and CEO of the Future Company will be appointed and announced at a later stage. The Boards of Directors of Konecranes and Cargotec will jointly make the decision on the appointment of the President and CEO before the completion of the merger.

 

“”The companies will manage the integration planning process with the aim to be prepared for a joint future from day one, while at the same time continuing business as usual until the completion of the merger. The target is to secure the best talent from both companies and ensure that the integration planning is conducted legally, ethically and compliantly. As this process evolves, Konecranes and Cargotec will inform, consult and negotiate with relevant employee organizations regarding the social, economic and legal consequences of the proposed combination in accordance with the requirements of applicable laws.”

 

It is not clear how long the merger process would take, not least because regulatory approvals will be required in most jurisdictions. Final approvals are not expected before the last part of 2021. It is possible that regulators might require the merged company to divest some lines to preserve competition - straddle carriers being the prime example - but it is understood that the new merged company wants to keep the existing portfolio of products as intact as possible.

 

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