Cargotec and Konecranes to merge creating a global leader in sustainable material flow

Transaction Highlights

• The Future Company will be a customer-focused global leader in sustainable material flow. The Future Company’s illustrative combined annual sales is approximately EUR 7.0 billion and comparable operating profit approximately EUR 565 million based on fiscal year 2019.
• The Future Company is well positioned to lead the industry shift towards increased sustainability based on intelligent solutions, by being a lifecycle partner for its customers and prioritizing safety in all its activities.
• The Future Company can unlock significant value for its stakeholders by being the lifecycle partner for its customers, solving the sustainability challenge through innovation, positioning itself well to grow in material flow and by creating and combining a team of top global talent.
• The Future Company initially aims to achieve a comparable operating profit in excess of 10 percent, supported by synergies expected to be approximately EUR 100 million annually that are expected to be achieved in full within 3 years from the completion.
• The proposed combination will be implemented as a statutory absorption merger whereby Konecranes will be merged into Cargotec. Prior to or in connection with the completion of the merger, Cargotec will issue new shares without payment to the shareholders of Cargotec in proportion to their existing shareholding by issuing two (2) new class A shares for each class A share and two (2) new class B shares for each class B share, including new shares to be issued to Cargotec for its treasury shares. Upon completion, Konecranes’ shareholders will receive as merger consideration 0.3611 new class A shares and 2.0834 new class B shares in Cargotec for each share they hold in Konecranes on the record date. This implies that Konecranes shareholders would own approximately 50 percent of the shares and votes of the Future Company, and Cargotec shareholders would own approximately 50 percent of the shares and votes of the Future Company. In addition to the merger consideration shares, all the existing class A shares of Cargotec will be listed on Nasdaq Helsinki in connection with the merger.
• Konecranes will propose to a general meeting of shareholders to be held before the completion of the merger to distribute an extra distribution of funds in connection with the transaction in the total amount of approximately EUR 158 million, corresponding to EUR 2.00 per share, to Konecranes’ shareholders before the combination is completed. The extra distribution of funds will be paid in addition to the ordinary distribution(s).
• With respect to ordinary distributions in 2021, the Boards of Directors of Cargotec and Konecranes will propose to their respective annual general meetings to be held in 2021 to effect a distribution of funds of up to EUR 70 million so that each company shall distribute an approximately equal amount before the combination is completed.
• Cargotec and Konecranes have obtained necessary commitments for the financing of the completion of the merger.
• The combination is subject to, among other items, approval by a majority of two-thirds of votes cast and shares represented at the respective EGMs of Cargotec and Konecranes, and the obtaining of merger control approvals. Completion is expected in the fourth quarter of 2021, subject to all conditions for completion being fulfilled.
• Shareholders representing approximately 44.8 percent of the shares and approximately 76.3 percent of the votes of Cargotec, and shareholders representing approximately 27.4 percent of the shares and votes of Konecranes, have irrevocably undertaken to vote in favour of the combination.
• The combination is unanimously recommended by the Boards of Directors of Cargotec and Konecranes to their respective shareholders.
• The Board of Directors of the Future Company is proposed to include an equal number of Board members from both companies. It is proposed that the Future Company’s Chairman will be Christoph Vitzthum.
• The preliminary financial targets of the Future Company will be above-market sales growth, an initial comparable operating profit in excess of 10 percent, and gearing below 50 percent which can temporarily be higher.

Cargotec Chairman, Ilkka Herlin, said: “Sustainability has been high on Cargotec’s agenda since its foundation and this merger enables us to become a global leader in sustainable material flow. Our customers are increasingly seeking green solutions and together we will have better opportunities to solve customers’ challenges. I believe this is an excellent value creation opportunity both from a business perspective and also shaping global trade for the better. The Future Company will be well-positioned to utilise these opportunities and create strong value for its customers, employees and shareholders.“

Konecranes Chairman, Christoph Vitzthum, said: ”The combination of Konecranes and Cargotec, with their iconic technology brands, innovation capabilities, talented people and focus on sustainability, will create a company that is clearly greater than the sum of its parts, delivering robust synergies and creating a unique platform for shareholder value creation. Customers will benefit from the companies’ combined technologies and even better service capabilities. This is a pivotal moment for Finnish industry and the material handling industry as a whole, and we are fully ready and committed to seize this historic opportunity.”

Cargotec CEO, Mika Vehviläinen, said: “The Future Company will have enhanced opportunities to improve the efficiency in customers’ operations and shape the whole industry forward to a more sustainable and intelligent one. Together we are stronger and our combined R&D resources will enable us to accelerate innovation in automation, robotics, electrification and digitalization. Both companies have broad service networks and together we can offer our customers superior value through our world-class service platform and intelligent technology.”

Konecranes CEO, Rob Smith, said: “The Future Company will be a global leader with its unparalleled product range, global service network, industry-leading intelligent technology and an unwavering commitment to safety. Supporting this will be top talent from both Konecranes and Cargotec and a passion to lead in sustainable material flow to deliver the very best for our customers. The timing is right, and the logic and fit of this combination are compelling. Konecranes looks forward to starting this journey together with Cargotec.”

The Rationale of the Combination

The proposed combination will create a global leader in sustainable material flow, with numerous valuable customer-facing brands and complementary offerings across its businesses in industries, factories, ports, terminals, road and sea-cargo handling. The proposed combination of Cargotec and Konecranes will deliver value through:
Strategic, Commercial and Operational Benefits

1. Unlocking value together by capturing synergies and developing the operational excellence and innovation built into the DNA of the Future Company.
2. Being the lifecycle partner for our customers with a broad service network in the industry, a world-class lifecycle services platform, and intelligent service technology enabling faster growth in the installed base, third-party equipment and innovative new offerings.
3. Solving the sustainability challenge through innovation in automation, robotics, electrification and digitalization.
4. Positioning us well to grow in material flow through a strong foundation built on the current core offering and increased R&D scale.
5. Creating and combining a team of top global talent by being the preferred choice in the industry based on the strong purpose, global footprint and multitude of individual growth opportunities.

The proposed combination of Cargotec and Konecranes is complementary and value-creating from geographical; product and services offering; employee; customer; and shareholder perspectives. The Future Company will rely on the skills of both companies and the combination will deliver benefits to all stakeholders. It aims to be a leader in sustainable material flow through its vision based on decarbonisation, safety, productivity and efficiency as well as maximizing the lifetime value of the equipment and solutions of its customers.

The range of combined product and services will comprise world-class lifecycle services, intelligent equipment and software that will create value for customers by improving their sustainability, safety and productivity. Customer value will also be created through broad service availability and coverage, an advanced technology offering, integrated solutions and lifecycle customer support.

The proposed combination provides a platform to innovate new offerings and grow into new industry segments in material flow management. The combined capabilities will further accelerate development of key projects in the areas of automation, robotics, digitalization and electrification. The Future Company will have a foundation on which to grow faster than the market in and around the current core of lifecycle services, intelligent equipment, software, systems engineering and optimization. The Future Company’s intelligent service technology offering will comprise remote monitoring, machine learning, digital tools as well as sales, planning and technical support platforms. Operational excellence is built into the DNA of the Future Company.

The Future Company will house leadership and talent and it will provide enhanced career opportunities and high people development focus for its employees. Cargotec and Konecranes believe that the Future Company will be an attractive employer with leading brands in its industries and it will focus on employee engagement, diversity and inclusion, based on a strong Nordic heritage. It will commit to ethical conduct, fair treatment and a focus on safety.

The Future Company can increase the penetration of its products and services to all current and potential customers. The Future Company will also cover an even wider part of the value chain with its offering, which helps the Future Company to serve customers more efficiently end-to-end. By combining the offerings of the two companies, the Future Company will be better positioned to provide customers with integrated services, equipment, software and systems engineering & optimization, resulting in solutions that have greater customer value than the sum of their parts.

Financial Benefits: Significant Synergies

The proposed combination of Cargotec and Konecranes is expected to unlock value for shareholders of the Future Company through complementary skills, increased R&D scale, global top talent, operational excellence, and synergies. The synergies are expected to be approximately EUR 100 million annually, and fully realised in the first 3 years from the completion.

The companies will manage the integration planning process with the aim to be prepared for a joint future from day one, while at the same time continuing business as usual until the completion of the merger. The target is to secure the best talent from both companies and ensure that the integration planning is conducted legally, ethically and compliantly.

As this process evolves, Cargotec and Konecranes will inform, consult and negotiate with relevant employee organizations regarding the social, economic and legal consequences of the proposed combination in accordance with the requirements of applicable laws.

The Future Company

Overview

The Future Company had in 2019 illustrative combined sales of approx. EUR 7.0 billion and comparable operating profit of approx. 565 million, with the share of service sales being approximately 40 percent. On a combined basis, Cargotec and Konecranes had approximately 29,400 employees across over 50 countries as of 30 June 2020. The Future Company’s broad service network comprised over 8,500 service employees serving customers from over 800 service locations from around the world. The customer industries of the Future Company will include container handling, manufacturing, transportation, construction and engineering, paper and pulp, metals productions, mining, power, chemicals and marine industries.

The Future Company’s name will be determined and announced at a later stage. Pursuant to the merger plan, the Board of Directors of Cargotec will propose to the shareholders’ general meeting of Cargotec to be convened prior to the completion of the merger that the articles of association of Cargotec will be amended in connection with the registration of the execution of the merger to contain a new name of the Future Company. The location of the headquarters of the Future Company will be decided later.

Board of Directors and Management

It is proposed that the Board of Directors of the Future Company will include four (4) directors from the current Board of Directors of Konecranes (Christoph Vitzthum, Janina Kugel, Ulf Liljedahl and Niko Mokkila) and four (4) directors from the current Board of Directors of Cargotec (Tapio Hakakari, Ilkka Herlin, Kaisa Olkkonen and Teuvo Salminen). It is proposed that the Future Company’s Chairman will be Christoph Vitzthum.

The President and CEO of the Future Company will be appointed and announced at a later stage. The Boards of Directors of Cargotec and Konecranes will jointly make the decision on the appointment of the President and CEO before the completion of the merger.