Cargotec-Konecranes Merger Abandoned After UK and US Opposition
Two of the leading manufacturers of cargo handling equipment for ports, Cargotec and Konecranes, abandon their plans to merge citing ongoing opposition from global regulators more than 15 months since the merger valued at $5 billion was first announced and after proposed divestment. The Finish engineering groups released their decision shortly after the UK’s Competition and Markets Authority announced they were blocking the merger and a day after the U.S. Justice Department’s Antitrust Division informed the companies that it also intended to file suit to block the merger.
Cargotec and Konecranes initially announced their plans to merge their operations in October 2020 saying that it would create a stronger combined company more able to compete in the changing market. They cited trends including the growing use of digitalization along with ports needing to deal with the increased size and capacity of ships creating a need for greater productivity. Sustainability of the operations they said was also becoming increasingly important for their customers.
The rationale for the merger was the ability to be a lifecycle partner for customers while also having the financial strength to increase R&D investments to address the drive for sustainability as well as innovation in automation, robotics, electrification, and digitalization. They also cited increased competition from lower-cost providers coming from China.
Regulators in many jurisdictions however expressed their concerns over the merger citing a perceived lack of competition after the combination. The Australian Competition & Consumer Commission said its investigation showed that the two companies were the only providers of straddle carriers used at terminals in Australia. The ACCC said it was considering the proposed merger’s effect on the gantry crane market, the supply of mobile container handling equipment in Australia, and repair and maintenance services, asking the companies to submit proposals to address these issues.
The UK’s CMA announced its initial objections in November 2021 also citing the lack of competition in key markets while the European Commission expressed similar concerns announcing they would undertake a Stage II more in-depth review of the proposal.
The companies, which had been targeting closing the transaction by the end of 2021, recently said that completion by even mid-2022 was looking more challenging. They, however, continued to pursue the approvals announcing that they had offered to divest of operations including Konecranes Lift Truck business and Kalmar Automation. They received conditional EU approval in response to the divestiture proposals while China and nine other jurisdictions also approved the merger.
“The solutions put forward by Cargotec and Konecranes failed to effectively address our concerns, which is why we were left with no choice but to block this merger in order to ensure that UK consumers and businesses are not worse off as a result of the deal,” said the CMA in announcing its decision. The cited the importance of container handling equipment saying the “loss of competition could have serious consequences for UK port terminals and other customers, including higher prices and lower quality products and services across a wide range of container handling products.” They believed the competition from Chinese suppliers would not be sufficient to overcome the combination of the companies.
The U.S. Justice Department also confirmed that its Antitrust Division had informed the companies that the settlement proposal was not sufficient to address concerns that the proposed combination would eliminate important competition in four types of shipping container handling equipment used by port customers to move goods in the global supply chain. Yesterday, DOJ informed the companies that it would move to block the merger.
Cargotec and Konecranes issued a joint statement saying that their boards had reviewed the comments received from the regulators and that they could not “find any satisfactory solution which would have addressed the concerns of the CMA and which would have been in the best interest of the shareholders of Konecranes and Cargotec, and of the combined company, without jeopardizing the rationale of the proposed merger.” They reported remaining in discussions with U.S. regulators.
“As a consequence of the CMA’s negative final report, the boards of directors Konecranes and Cargotec have therefore concluded that it is in the best interest of each of Konecranes and Cargotec and their respective shareholders that the merger is canceled,” they said in their joint statement.
Cargotec and Konecranes said that they would move forward independently each focusing on their strategies to address challenges in the market. Both companies also plan to explore new business concepts in the future.