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Robert.Jervis_43227 Mar 29

Cargotec & Konecranes merger abandoned

kalmar
Cargotec refocuses strategic direction - no more Kalmar heavy cranes?
The UK Competition & Markets Authority (“CMA”) has blocked the merger between Cargotec and Konecranes. According to the CMA’s final report issued today, the remedies - which would have removed all overlapping businesses of the two companies and were accepted by the European Commission (“EC”) - would not be effective in addressing the CMA’s concerns and thus the planned merger between Cargotec and Konecranes cannot be completed. The completion of the planned merger would have required approvals from all relevant competition authorities. Thus, Cargotec and Konecranes have today decided to cancel the planned merger.

Cargotec and Konecranes have obtained clearances for the planned merger from numerous competition authorities. As announced on February 24, 2022, the EC conditionally approved the planned merger between Cargotec and Konecranes on the basis of the same remedy package rejected by the CMA, which comprised commitments to divest Konecranes Lift Truck business and Kalmar Automation Solutions. In addition, the State Administration for Market Regulation (the competition authority in China) and nine other jurisdictions have approved the planned merger. 

In addition to the clearances of the above competition authorities, completion of the merger remained subject to further approvals from various other competition authorities, including the Department of Justice (“DOJ”) in the United States, with whom Cargotec and Konecranes have been in continuous dialogue.

In response to feedback received from the CMA during the course of their investigations, the boards of directors of Cargotec and Konecranes carefully considered amending the remedy package offered to the EC further, as well as offering alternative remedy packages to address the concerns raised by the CMA. The boards of directors did not, however, find any satisfactory solution which would have addressed the concerns of the CMA and which would have been in the best interest of the shareholders of Cargotec and Konecranes, and of the combined company, without jeopardising the rationale of the proposed merger as presented on 1 October 2020.

As a consequence of the CMA’s negative final report, the boards of directors Cargotec and Konecranes have therefore concluded that it is in the best interest of each of Cargotec and Konecranes and their respective shareholders that the merger is cancelled.

Ilkka Herlin, the Chairman of Cargotec stated:

“The Board of Cargotec is convinced that the merger would have created substantial value for the entire industry as well as shareholders by improving sustainable material flow. The combination would have created a strong European company enabling accelerated shared abilities to innovate without harming competition. We have done all we could to realise the merger and are disappointed that our plans have had to be abandoned. After a long and extensive regulatory review process and merger planning preparations it is time to shift our full focus on executing Cargotec’s own strategy and value-creation opportunities.”

Christoph Vitzthum, the Chairman of Konecranes stated:

“The combination of Konecranes and Cargotec, as planned and announced on 1 October 2020, would have created a company that would have been greater than the sum of its parts. The merger control process has been extensive and the investigations thorough, and Konecranes Board of Directors is disappointed that the remedy package offered did not satisfy the concerns of all regulators. At the same time, we believe that further remedies would have not been in the best interest of Konecranes’ shareholders as they would have changed the strategic rationale of the transaction.  Konecranes will continue to drive its strategy and pursue value-creation potential on a stand-alone basis.”

Cargotec and Konecranes will immediately cease the pursuit of the merger and the related processes and continue to operate separately as fully independent companies.

By the end of 2021, Konecranes had booked EUR 56 million and Cargotec EUR 57 million of merger related transaction and integration planning costs. The total transaction cost estimate of EUR 125 million (excluding integration planning costs) remains valid. The final transaction and integration planning costs will be reported when available.

Further to the abandonment of the merger, Cargotec has announced a refocus of its strategic direction. The following is from the company announcement:

“Cargotec’s Board of Directors’ has decided to refocus the strategic direction of the company for higher financial performance. Cargotec will focus on sustainability and growth in profitable core businesses Hiab, Kalmar Mobile Solutions and Kalmar’s horizontal transportation business (“Core Businesses”). Cargotec’s vision and breakthrough objectives sustainability and profitable growth remain.

Cargotec will initiate an evaluation of strategic options of MacGregor including a potential sale of the business. The evaluation covers the whole business area inclusive of its merchant, offshore and services businesses. MacGregor is global leader in sustainable maritime cargo and load handling solutions.

Cargotec will also shift Kalmar’s focus towards mobile solutions and will start planning an exit from the heavy port cranes business. Going forward, Kalmar would offer industry shaping, eco-efficient cargo handling equipment and lifecycle services in the mobile equipment product categories, straddle and shuttle carriers as well as Bromma spreaders.

Hiab is the world's leading provider of on-road load handling equipment, intelligent services, smart and connected solutions and will be at the core of Cargotec’s strategy. Hiab’s business portfolio will remain the same, but Cargotec plans to further accelerate the development of Hiab’s M&A pipeline.

In addition to the planned actions above, Cargotec plans to review its operational model to support the refocused group. Cargotec’s capital allocation priorities for upcoming 12 months are planned to be acceleration of M&A, research and development investments in electrification, robotics and digitalisation as well as Cargotec’s climate programme Mission Climate.

These planned actions are subject to normal local legal requirements and works council consultations.

Cargotec’s Core Businesses will support customers with lifecycle services as well as with market leading equipment and technologies. Automated, robotized and zero emission equipment help Kalmar and Hiab customers to overcome sustainability challenges.

Based on 2021 figures* Core Businesses would have had sales of 2.6 billion euros representing approximately 80% of Cargotec’s total sales. Core Businesses comparable operating profit margin would have been 10.1% while Cargotec’s comparable operating profit margin was 7.0%. Service sales would have been 31% of Core Businesses total sales.

*Hiab and MacGregor figures are based on Cargotec’s audited Financial Statement Review 2021. Kalmar and Core Businesses figures are management estimates and do not include divested software business Navis. Consolidation of Navis ended on 1 July 2021. Cargotec’s 2021 comparable operating profit includes Navis and corporate administration and support functions.

The Board’s decision doesn’t impact Cargotec’s outlook for 2022 published on 3 February 2022 in conjunction with the company’s Financial Statements review 2021. Cargotec expects its comparable operating profit for 2022 to improve from 2021 (EUR 232 million).

“This strategic direction and the refocusing of Cargotec demonstrate our commitment to profitable growth, sustainability and the excellence of our people adapting to new challenges. The board is convinced that it is the right time to ensure an accelerated but orderly transition to an even more profitable and futureproof business.”, says Cargotec's Chair of the Board Ilkka Herlin.

“Cargotec refined its strategy in April 2021 with sustainability and profitable growth as breakthrough objectives. Our vision remains, but we will further focus our businesses. That would enable us to accelerate M&A and R&D investments in our profitable core and I’m confident that with our refocused strategic direction we will be well positioned to capture growth in industry trends of electrification, automation and digitalisation”, says Cargotec's CEO Mika Vehviläinen.

“With this planned balanced portfolio we will support our customers with lifecycle services as well as market leading equipment and technology in our profitable Core Businesses Hiab and refocused Kalmar. These are recurring businesses with already above 10 percent comparable operating profit margins. The markets are structurally attractive and we hold leading market positions there. We are now planning to exit or evaluate strategic options for the project businesses where we have been less successful”, Mr Vehviläinen continues.”