Terex Investors Might Want To Worry About This Downgrade

• The share price of Terex Corporation TEX has dropped more than 23 percent, year to date.
• JP Morgan’s Ann Duignan has downgraded the rating on Terex from Neutral to Underweight, while lowering the price target from $25 to $23.
• Duignan expressed concern regarding the deal with KONECRANES PLC KNCRF, stating that it fulfills several criteria that could result in failure.

According to the JP Morgan report, “Over the years, many studies have been published highlighting that one half to two thirds of mergers destroy shareholder value rather than create it.”

There are cases when such deals fail due to the strategic nature of the merger being defensive, rather than offensive. On the other hand, cultural differences also prove to be frequent obstacles to such mergers ending in successful integration.

Duignan believes that the Konecranes deal appears defensive with the “recent slowdown in global industrial end markets as well as growing concern about ‘intensifying global competition’” having spurred the merger.

However, there are likely to be downside risk to the synergies and restructuring savings expected from the deal. In addition, the cultures of the two companies appear to be meaningfully different, especially given each entity’s geographic focus and focus on services versus new product sales.

Also, when there is a change in control, a large pay-out is indicated. “Ron DeFeo is entitled to the immediate vesting of all performance stock options, stock grants, long-term incentive compensation awards and other similar awards, with a period of one year following termination to exercise any such option,” the report said.

Moreover, DeFeo’s retirement plan pay-out would need to be immediate.