Volvo Construction Equipment

Volvo Construction Equipment Set to Acquire Hauler Business from Terex

In a move that will improve the company’s penetration in the core earthmoving segment and extend its presence in light mining, Volvo Construction Equipment has agreed to acquire the off-highway hauler business of the Terex Corporation for a purchase consideration of approximately $160 million (approximately SEK 1 billion) on a cash and debt-free basis.

Volvo Construction Equipment (Volvo CE) announced that it has an agreement with the Terex Corporation to acquire the hauler manufacturer Terex Equipment Ltd. (TEL), including related assets and intellectual property. The deal, which is subject to regulatory approval, includes the main production facility in Motherwell, Scotland, and two product ranges that offer both rigid and articulated haulers. It also includes the distribution of haulers in the U.S., as well as a 25.2% holding in Inner Mongolia North Hauler Joint Stock Co (NHL), which manufactures and sells rigid haulers under the Terex brand in China. NHL is listed on the Shanghai Stock Exchange.

In 2012, the businesses in the acquisition (excluding NHL) had net sales of approximately $370 million (approximately SEK 2.5 billion) and an operating income of approximately $33 million approximately SEK 220 M). In the first nine months of 2013 net sales amounted to approximately $172 million (approximately SEK 1.1 billion) and operating income was approximately $5.5 million (approx. SEK 35 M). The holding in NHL will likely be accounted for using the equity method in accordance with IAS 28 (one-line consolidation). The purchase consideration amounts to approximately $160 million (approximately SEK 1 billion) on a cash and debt-free basis. The acquisition will increase the Volvo Group Industrial Operation’s net financial debt by SEK 1billion.

Strategic Move for Both Parties

The acquisition includes five models of rigid haulers, with proven designs and payloads ranging from 32 to 91 tons. The introduction of rigid haulers will extend Volvo CE’s position in light mining, an industry area that is complementary to general construction, oil & gas, aggregates & quarrying and road building – segments that Volvo CE is already active in.

The deal also sees three models of articulated hauler added to the Volvo portfolio, with payloads ranging from 25 to 38 tons. These machines support Volvo CE’s already established position in the articulated hauler segment, offer an extensive field population and opportunities for considerable growth in emerging economies.

Commenting on the rationale of the deal Volvo CE’s president, Pat Olney, said: “This is a strategic acquisition that offers
Volvo CE considerable scope for growth. The addition of a well-respected range of rigid haulers extends the earthmoving options for customers involved in light mining applications at a time of renewed confidence in the sector. The addition of TEL's articulated hauler range will enhance our position in this segment, particularly in high-growth markets. We believe that the Motherwell facility and its global team members, as well as the current distribution partners, are valuable to the success of the business in the future.”

If approved, the acquisition adds some 500 employees to Volvo CE’s existing workforce. It also allows for the continued use of the Terex brand name on the relevant machines for a transitional period.

The sale is also a strategic move on Terex's part. According to Ron DeFeo, Terex Chairman and Chief Executive Officer, “The truck business has been an important part of our company for more than three decades and continues to produce world-class products with dedicated and talented employees. However, trucks no longer fit within our changing portfolio of lifting and material handling businesses. I am confident that the truck business will benefit by joining a company sharing similar competencies and offering complementary products and services. We are pleased to have entered into this agreement with Volvo, which represents a strong strategic buyer for the business who values our distribution network and team members.”

DeFeo added, “The sale of the truck business reflects our strategy to manage our portfolio of businesses and
focus on those businesses that provide the greatest returns for our shareholders. We recently announced the initiation of quarterly cash dividends to our shareholders and a share repurchase program and the proceeds from this sale aid our efforts to improve our financial efficiency and implement these programs.”

The transaction is expected to be finalized during the second quarter of 2014, subject to government regulatory approvals and other customary closing conditions.

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