April 6, 2016 / 8:53 PM / 3 years ago

China's Zoomlion seeks to assure Terex over deal: sources

(Reuters) - China’s Zoomlion Heavy Industry Science and Technology Co Ltd (000157.SZ) is seeking to provide assurances to U.S. crane maker Terex Corp (TEX.N) over its $3.4 billion offer, after reaching broad agreement on price, people familiar with the matter said.

A Zoomlion company logo is seen on an advertisement as passengers walk past at an airport in Changsha, Hunan province July 13, 2013. REUTERS/Stringer

Zoomlion’s move comes as U.S. companies become more skeptical of Chinese companies’ ability to complete deals. Last week, China’s Anbang Insurance Group Co unexpectedly withdrew a $14 billion offer for Starwood Hotels & Resorts Worldwide Inc HOT.N that had topped a merger agreement with Marriott International Inc (MAR.O).

As in the case of Starwood, Terex has an existing merger agreement with another company - Finland’s Konecranes KCR1V.HE. Some other prospective Chinese buyers have failed recently to convince U.S. companies, including life sciences firm Affymetrix and Fairchild Semiconductor International Inc FCS.O, to abandon agreed mergers with U.S. peers in favor of their bids.

Zoomlion has told Terex it will cover the risk of the acquisition being approved by the Chinese authorities, including the country’s ministry of commerce, the people said this week. However, Terex is seeking more assurances from Zoomlion that any agreed-upon deal will be completed, the people added.

Negotiations over a breakup fee and other contingencies have not yet started, as Zoomlion’s financing banks are still conducting their due diligence and the two companies exchange draft merger agreements, the people added.

Terex is hoping to decide as early as later this month on whether it will seek to abandon its merger with Konecranes in favor of a deal with Zoomlion, though there is no certainty over the timing of these discussions, the people said.

The sources asked not to be identified because the negotiations are confidential. Terex, Zoomlion and Konecranes declined to comment.

Terex said last month it would move forward with its negotiations with Zoomlion, after it increased its offer from $30 to $31 per share, and that it would seek to obtain a bid that provides “a high degree of closing certainty.”

Westport, Connecticut-based Terex has 97 so-called priority-rated contracts with the U.S. government that could attract scrutiny from the Committee on Foreign Investment in the United States (CFIUS). It also provides mobile harbor cranes in ports that are seen as a critical part of U.S. infrastructure.

However, Terex is not treating CFIUS as an issue that would preclude any deal with Zoomlion. The value of Terex’s priority-rated government contracts is small and not material to Terex’s business, Reuters reported in January.

Unlike Anbang, Zoomlion is a publicly listed company, with the Chinese province of Hunan, which holds a roughly 16 percent share, its biggest shareholder. It is led by researcher-turned entrepreneur Chunxin Zhan, who founded Zoomlion in 1992 with seven other partners with a loan of 500,000 yuan ($77,000).

Last month, Konecranes Chairman Stig Gustavson stepped down after facing subsidy fraud charges over his personal involvement in a business park venture. Gustavson said he made the transition because of his age. He became vice chairman to the board, with Christoph Vitzthum named chairman.

Zoomlion has also faced woes of its own. Last month, it reported its lowest annual profit in 15 years, with net income dropping 85 percent to 89 million yuan ($13.74 million) in 2015, as Chinese heavy equipment makers struggle with a glut of unsold equipment.

Reporting by Greg Roumeliotis in New York; Editing by Matthew Lewis

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