The declaration by US engineering group Terex Holdings, that its offer for Dungannon, Co Tyrone-based engineering group, Powerscreen, had been declared unconditional, has been portrayed as a success - but success can only be claimed when it owns 100 per cent of Powerscreen.
It will need to get 90 per cent of the company before it can compulsorily acquire the outstanding shares. Terex will now be making strenuous attempts to increase acceptances from the 61 per cent it has achieved, up to a point at which it can mop up the remaining shares.
Failure to do so will leave it in a very awkward position. It would be left with a minority shareholding, possibly with a share quotation. In that scenario, its planned integration programme would be inhibited; it would have to be careful not to do anything to dilute the minority shareholders' interest.
However, sources close to Terex say the company is confident that it will end up with a 100 per cent holding. More acceptance should start to flow in for two reasons. First, index fund managers do not accept until the offer has been declared unconditional and should now accept following the unconditional declaration. Second, there is no chance of a counter bid now that the offer has been declared unconditional, so many shareholders are now likely to accept.
The bid of 195p sterling per share, valuing the group at £181 million sterling, could hardly be considered generous. Indeed, as indicated in this column in June, the offer does not reflect the recovery Powerscreen has experienced this year with profits running ahead of expectations. Also, as the shareholders appear to have foregone a dividend of 2.5p per share, the offer is, in effect, 192.5p. Non-payment of this dividend must be considered niggardly by shareholders.
A realisation that Powerscreen was being sold on the cheap is what probably prompted financier Dermot Desmond to buy 10 per cent of the company. It looked like the prelude to a counter bid but the reason for the sale of 9 per cent shortly afterwards remains a mystery. Some sources close to Terex mused that he withdrew when he realised that Terex was paying a full price. That reason does not stand up to scrutiny; a more plausible reason is that he failed to secure sufficient support from some of Powerscreen's institutional shareholders.
There are 11,000 shareholders in Powerscreen and some may be tempted to hold out and say no. If they succeeded in denying Terex the right to compulsorily acquire the outstanding shares, they would end up as minority shareholders. They could argue that at some future stage, Terex would be tempted to make a higher offer to buy them out.
However, that type of strategy tends not to work, as the parent company (Terex) can be inhibited in its strategy to make the acquisition work. Shareholders would be best served to accept. That would allow Terex to get on with its avowed aim to integrate Powerscreen's businesses into the Terex lifting and earth-moving divisions, ensuring its continuity.
Terex's aim to become a leader in its businesses was given a boost with the recent acquisition of US group, Cedarapids, for $170 million. A leading manufacturer of mobile crushing and screening equipment, Cedarapids is in the same business as Powerscreen. "It is a strategic fit with Powerscreen's screening and crushing businesses, which creates new additional opportunities for revenue growth and cost reduction," according to Terex.
Obviously Terex, which has been growing at a very fast rate - net income rose from $20.6 million to $30.4 million and earnings per share grew from $0.92 to $1.30 in the three months to June 30th, 1999 - will be the greatest beneficiary from the acquisition of Powerscreen, but the deal gives the Dungannon company stability after years of uncertainty over accounting irregularities, an investigation by Britain's Serious Fraud Office and management upheavals.
