Terex Corp CEO Not Sold On Sale Prices For Companies
March 26 2011 - 1:26PM
Dow Jones News
Terex Corp. (TEX) Chairman and Chief Executive Ron DeFeo
considers most machinery companies for sale as overpriced, but he
sees the climate for value-conscious buyers improving.
DeFeo, whose construction-equipment company was built through
some 50 acquisitions beginning in the mid-1990s, said a wave of
optimism has washed over the industrial sector, running up purchase
prices to reflect companies' optimum levels of profitability.
"The valuations are there for the future, but the performance
isn't quite there yet," said DeFeo, in an interview with Dow Jones
Newswires at the ConExpo construction equipment trade show in Las
Vegas. "We're our own example of that. My stock price is trading on
my future potential, more than my existing performance. That makes
acquisitions challenging."
Terex lost $1.23 per share in 2010. But its stock price has more
than doubled since July, closing Friday at $37.40 a share. The
stock is trading at a lofty 50 times the company's projected 2011
profit.
DeFeo said he's opted to wait until companies' actual
performance becomes more aligned with acquisition prices before he
becomes a buyer. He said he expects the gap to narrow in 2011 as
the economic recovery gathers momentum.
"The performance will come up to the price level, which will
open up the window again for the strategic" buyers, he said.
The Connecticut company's business lines consist of specialized
equipment, such as cranes, road pavers, rock crushers and compact
construction machinery, rather than mainline earth-moving
categories, like bulldozers and excavators.
DeFeo, 59, who has led Terex for 16 years, has a reputation for
finding underpriced or overlooked companies to buy during cyclical
slumps. Terex bought aerial-work-platform manufacturer Genie
Holdings for $75 million in 2002. By 2007, the platforms used for
washing windows, painting, installing light bulbs and other
above-ground jobs would account for one-third of Terex's annual
revenue and 56% of its operating income.
Terex sold its mining machinery business to Bucyrus
International Inc. (BUCY) in 2010 for $1.3 billion with the intent
of using the sale proceeds to acquire other equipment companies.
DeFeo assumed the 2009 economic recession would create a slew of
purchase opportunities as lenders forced the sale of companies that
had fallen on hard times. But that wasn't the case. Banks chose
instead to restructure underperforming loans to avoid high volumes
of loan write-offs. Terex used the Bucyrus money to pay down
debt.
"This is probably the most difficult period I've been in to find
financially attractive acquisitions to make," DeFeo said.
When deals come around to DeFeo's liking, he said the company
should have plenty of buying-power. By reducing its debt in recent
months, the company will have the ability to borrow again for
acquisitions. On top of that, Terex will receive an additional $200
million from the mining business sale when Caterpillar Inc. (CAT)
completes its purchase of Bucyrus later this year. Terex is
Bucyrus' largest shareholder after taking a large equity stake in
the company as part of the compensation for the mining line.
"I actually got two bites at the apple," DeFeo said about the
benefits from the Terex mining sale.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
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