UPDATE 7-Terex in hostile $1.3 bln bid for Germany's Demag

Mon May 2, 2011 1:50pm EDT

* Terex offers 41.75 euros per Demag share

* Demag shares jump 24 percent, above offer price

* Terex says it had unsuccessful talks with Demag

* Terex shares down 2 pct (Adds Demag comment, updates share movement)

By Arno Schuetze and Nick Zieminski

FRANKFURT/NEW YORK, May 2 (Reuters) - U.S. construction machinery maker Terex Corp (TEX.N) made a hostile $1.31 billion bid for Demag Cranes D9CGn.DE on Monday, and the German company's shares rose above the offer price on expectations of a bidding war.

Terex took its offer directly to shareholders after talks with Demag failed to secure a deal. Terex said it would pay 41.75 euros per share in cash, valuing its bid at 884 million euros ($1.31 billion).

The offer represents a 15 percent premium to Demag's closing price on Friday. The company's shares rose 24 percent to 45 euros on Monday, while Terex dipped 2 percent to $34.09.

Analysts said the Terex offer was probably too low.

"It is likely that Terex will have to increase the offer price in order to be successful," DZ Bank analyst Karsten Oblinger said, adding that Finland-based crane maker Konecranes could counterbid.

Konecranes (KCR1V.HE) declined to comment. In October, it expressed interest in merging with Demag but was rebuffed. It later ruled out a hostile approach. [ID:nLDE69L0V9]

Terex and Demag have not talked since September, said a person with direct knowledge of the talks. The source requested anonymity because the discussions were confidential.

Demag confirmed receiving an "unsolicited" offer from Terex and said it would update shareholders of any meaningful developments.

Buying Demag would give Terex added scale in Europe and emerging markets, especially in China. For a factbox about Demag's businesses, see [ID:nLDE7411GN]

Terex said the minimum acceptance threshold on its bid would be 51 percent of Demag shares. It would fund the offer from existing cash and committed debt financing.

At March 31, Terex's liquidity totaled $1.22 billion, with cash of $723.7 million and a revolving credit facility of $495.3 million.

FAILED TALKS

Terex said it had not done due diligence on Demag's business, adding it has tried to engage the company in a dialogue for more than a year.

Asked if he was prepared to raise his offer, Terex Chief Executive Officer Ron DeFeo said the company stood by it. "Where the stock is trading today really is, I think, an indication of maybe a different expectation on the side of investors (than) may actually happen," he said.

Westport, Connecticut-based Terex has been reshaping its portfolio to become a major player in earth-moving equipment and cranes, taking on rivals like Caterpillar Inc (CAT.N), Komatsu Ltd (6301.T) and Volvo (VOLVb.ST). It has spent $2.8 billion on more than 40 acquisitions since 1994.

It entered the market for harbor cranes in 2009 by buying Italy-based Fantuzzi Industries as part of a move to diversify away from construction equipment amid a long slump in North American housing and nonresidential construction.

Terex also sold its mining business to Bucyrus International BUCY.O for $1 billion and 5.8 million in stock; Caterpillar later bought Bucyrus. [ID:nN15240059]

A Demag acquisition would extend Terex's reach into businesses driven by global container traffic, Terex said.

Industrial cranes account for just under half of Demag's sales. Port technology contributes about a fifth of revenue, with maintenance and other services making up the rest.

Goldman Sachs (GS.N) and Commerzbank (CBKG.DE) are advising the company.

Germany is Terex's second-largest market, and more than a fifth of its employees are based there.

It bought a former Demag sister company, Demag Mobile Cranes, in 2002. The mobile crane business -- cranes mounted on trucks or tank-like vehicles -- has grown faster than Demag over the past six years, according to a Terex presentation.

Terex reported 2010 sales of $4.4 billion. Demag posted a net profit of 28 million euros in its fiscal 2009/10 on sales of 930 million euros ($1.3 billion).

At Demag's shareholder meeting in March, investors pushed management to talk with possible suitors, but CEO Aloysius Rauen said that while the board had looked into the possibility of a merger, such a move made no sense. (Additional reporting by Edward Taylor, Alexander Huebner and Christoph Steitz; Editing by Sophie Walker, Lisa Von Ahn and John Wallace)

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