Konecranes says US tax rules will cut Terex deal's synergies

[STOCKHOLM] Finnish crane maker Konecranes Oyj said proposed US tax rules will reduce the benefits from merging with its US competitor Terex Corp by 32 million euros (S$49 million), casting further doubt over the deal, which has already been challenged by a counteroffer from China's Zoomlion Heavy Industry Science & Technology Co.

The US Treasury Department has put forward proposals to make so-called tax inversions, in which a US company shifts its address overseas to lower its tax rate, harder. The proposal, which this month led Pfizer Inc and Allergan Plc to terminate plans for a US$160 billion merger, would eliminate basically all the financial and tax synergies that Konecranes and Terex had sought in their proposed merger, the Hyvinkaa, Finland-based company said in a statement.

"While Terex and Konecranes are still considering the full effects of these developments, the regulations will materially impact the ability of the combined company to realize the anticipated financial and tax benefits of the merger," Konecranes said.

Konecranes shares slumped 4.6 per cent to 19.90 euros at 10.07 am in Helsinki. The company also reported first-quarter sales and operating profit that missed analyst estimates.

Konecranes has sought a merger with Terex since August, as demand for equipment slows amid a construction slump in China and a drop in spending by energy and mining companies.

The Finnish company has pushed to close the deal even after a bidding war ensued as Zoomlion made an unsolicited bid for Terex of US$30 a share in January, and raised it by US$1 a share in March.

Konecranes said it will continue to pursue the merger, which is expected to yield operational synergies of 110 million euros in addition to the 32 million-euro tax and financial benefit that is now in doubt.

The companies have obtained antitrust clearances in India, Turkey, Ukraine, Russia and South Africa, and are in the process of obtaining approval in the US and the European Union, Konecranes said.

BLOOMBERG