Cargotec and Konecranes to Merge Creating a Global Leader in Sustainable Material Flow

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:

1. 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.

Strategic, Commercial and Operational Benefits

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.

Ownership Structure and Governance

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 the completion of the merger, 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, corresponding to the post-completion ownership in the Future Company of approximately 50 percent for Konecranes shareholders and approximately 50 percent for Cargotec shareholders, assuming that none of Konecranes shareholders demands redemption of his/her shares at the Konecranes EGM resolving on the merger. The table below illustrates the ten (10) largest shareholders of the Future Company (as per 31 August 2020), assuming all current Cargotec and Konecranes shareholders are shareholders with unchanged holding also at the completion of the combination¹⁾.

¹⁾ Excluding treasury shares and after the 3 for 1 B share split and a 3 for 1 A share split in Cargotec prior to or in connection with completion

As part of the combination, it is proposed that a shareholders’ general meeting of Cargotec to be held before the completion of the merger will conditionally decide on the establishment of a Shareholders’ Nomination Board for the Future Company consisting of four members, and conditionally approve its Charter entering into force upon the completion of the merger (one member being appointed by the highest voting shareholder (total votes) and a member being appointed by each of the three shareholders holding the highest number of class B shares (other than the highest voting shareholder)). The Charter is appended to the merger plan included as Annex 1 to this stock exchange release.

Illustrative combined financial information

The illustrative combined statement of income information presented below is based on Cargotec’s and Konecranes’ audited consolidated financial statements as of and for the year ended 31 December 2019 and the unaudited consolidated interim financial information as of and for the six months ended 30 June 2020. The illustrative combined balance sheet presented is based on the unaudited consolidated balance sheet information of both companies as at 30 June 2020. The combined financial information is presented for illustrative purposes only and is unaudited.

The illustrative combined financial information presented herein is based on a hypothetical situation and should not be viewed as pro forma financial information as any impacts of purchase price allocation, differences in accounting principles, adjustments related to transaction costs, tax impacts and impacts of the potential refinancing have not been taken into account. The illustrative combined financial information does not reflect any cost savings, synergy benefits or future integration costs that are expected to be generated or may be incurred as a result of the merger.

The actual consolidated financial information for the Future Company will be prepared based on the final merger consideration and the fair values of Konecranes’ identifiable assets and liabilities at the merger completion date, including the impacts of the possible refinancing that is contingent on the completion of the proposed combination. The Future Company’s consolidated financial information that will be published following the completion of the proposed combination could therefore differ significantly from the illustrative combined financial information presented herein. Accordingly, this information is not indicative of what the Future Company’s actual financial position, results of operations or key figures would have been had the proposed combination been completed on the dates indicated.

Pro forma information with full notes disclosures will be available in a merger and listing prospectus to be published by Cargotec prior to the EGMs of Cargotec and Konecranes. For reconciliations on the alternative performance measures, see Annex 2 to this release.

Illustrative combined statement of income information – unaudited

The illustrative combined financial information of the Future Company is presented assuming the activities were included in the same group from the beginning of each period. The illustrative combined statement of income information has been calculated as a sum of Cargotec and Konecranes’ financial information for the year ended 31 December 2019 and for the six months ended 30 June 2020 with the following adjustments:

• Comparable EBITDA and Comparable operating profit for the Future Company have been determined to exclude purchase price allocation impacts in addition to items significantly affecting comparability as explained below and in Annex 2 to this release. Comparable EBITDA and Comparable operating profit historically reported by Cargotec have been adjusted accordingly.
• Konecranes’ financial information has been reclassified to align with Cargotec’s presentation regarding the presentation of share of associated companies’ and joint ventures’ net income above operating profit.  

¹⁾ Presentation of Comparable EBITDA and Comparable operating profit have been aligned between Cargotec and Konecranes, thus comparable figures historically reported by Cargotec have been adjusted to exclude also purchase price allocation impacts (“PPA impacts”).

²⁾ Share of associated companies' and joint ventures' net income presented by Konecranes below operating profit has been reclassified to be presented above operating profit to align with Cargotec's presentation. Items affecting comparability reported by Konecranes for January-June 2020 have been reclassified accordingly to include remeasurement impact of its previously held equity interest in MHE-Demag.

³⁾ EBITDA = Operating profit + depreciation, amortisation and impairment.

⁴⁾Comparable EBITDA = Operating profit + depreciation, amortisation and impairments + items affecting comparability + PPA impacts on inventory

⁵⁾ Illustrative combined operating profit does not include any purchase price allocation impacts such as amortisation and depreciation for any fair value adjustments on non-current assets or other purchase accounting impacts to be recognised in the combination of Cargotec and Konecranes under IFRS and, thus is not representative of future operating results of the Future Company.

⁶⁾ Comparable operating profit = Operating profit + items affecting comparability + PPA impacts

Illustrative combined balance sheet information and related KPIs – unaudited

The combined balance sheet information illustrates the impact of the proposed combination as if the transaction had taken place on 30 June 2020. The illustrative combined balance sheet information as at 30 June 2020 has been calculated as a sum of Cargotec’s and Konecranes’ balance sheet information at 30 June 2020 adjusted using the following assumptions:

• Both Cargotec’s and Konecranes’ dividend distribution from the year 2019 paid subsequent to 30 June 2020 have been adjusted to decrease cash and cash equivalents and total equity. The extra distribution of funds to Konecranes' shareholders of EUR 2.00 per share proposed to be distributed prior to the completion of the merger has been adjusted to increase interest-bearing liabilities and to decrease total equity.
• The difference between the preliminary merger consideration, which has been calculated based on the closing share price of the Cargotec’s share on 29 September 2020, (EUR 27.94 per share) and Konecranes’ net assets as at 30 June 2020, totalling EUR 785 million has been allocated to goodwill. This figure is indicative and subject to change. The illustrative aggregate preliminary merger consideration of EUR 1,802 million has been allocated to total equity. For preliminary merger consideration valuation purposes, the same share price has been used for both Cargotec’s class B shares and class A shares.

¹⁾ Interest-bearing net debt = non-current interest-bearing liabilities + current portion of interest-bearing liabilities + current other interest-bearing liabilities - non-current and current loans receivable and other interest-bearing assets - cash and cash equivalents

²⁾ Gearing, % = Interest-bearing net debt / Total equity

³⁾ Gearing, % (excluding lease liabilities) = (Interest-bearing liabilities - lease liabilities) / Total equity

⁴⁾ Interest-bearing net debt to EBITDA = Interest-bearing net debt / EBITDA (last twelve months, “LTM”)

⁵⁾ Interest-bearing net debt to Comparable EBITDA = Interest-bearing net debt / Comparable EBITDA (LTM)

⁶⁾ Equity to asset ratio, % = Total equity / (Total assets - advances received)

⁷⁾ ROCE, % = (Income before taxes + financing expenses) LTM / (Total assets - non-interest-bearing liabilities) at 30 June 2020

⁸⁾ Comparable ROCE, % = (Income before taxes + financing expenses + items affecting comparability + PPA impacts) LTM / (Total assets - non-interest-bearing liabilities) at 30 June 2020

Financial Targets

The Boards of the Directors of Cargotec and Konecranes have together with the managements of the respective companies considered appropriate financial targets for the Future Company and agreed on the following framework. Subsequent to the completion of the merger, the management team of the Future Company will together with the Board of Directors of the Future Company refine and possibly adapt these targets.

• Above-market sales growth
• Initial comparable operating profit in excess of 10 percent
• Gearing below 50 percent which can temporarily be higher

The Merger

The Statutory Merger

The proposed combination of Cargotec and Konecranes will be executed through a statutory absorption merger pursuant to the Finnish Companies Act whereby all assets and liabilities of Konecranes are transferred without a liquidation procedure to Cargotec. As a result of the completion of the merger, Konecranes will automatically dissolve.

Prior to or in connection with the completion of the merger, the EGM of Cargotec is proposed to authorise the Board of Directors of Cargotec to 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 of the merger, Konecranes’ shareholders will receive as merger consideration 0.3611 new class A shares and 2.0834 new class B shares in Cargotec to be issued for each share they hold in Konecranes on the record date. The aggregate number of the new shares in Cargotec to be issued as merger consideration to the shareholders of Konecranes is expected to be 193,444,184 shares divided into 28,575,453 class A shares and 164,868,731 class B shares (after the registration of the split of the class A and class B shares of Cargotec, excluding treasury shares held by Konecranes and assuming that none of Konecranes’ shareholders will demand redemption of his/her shares at the EGM of Konecranes resolving on the merger).

As part of the proposed combination, the Board of Directors of Cargotec and Konecranes have agreed to propose to their respective annual general meetings to be held in 2021 the authorization of the respective Board of Directors to, before the completion of the merger, resolve upon the 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 also agreed that Konecranes will, in addition to the distribution of funds referred to in the foregoing sentence, propose to a general meeting of shareholders to be held before the completion the authorization of the Board of Directors to resolve upon an extra distribution of funds in the total amount of approximately EUR 158 million, corresponding to EUR 2.00 per share, to Konecranes’ shareholders before the combination is completed.

Each of Cargotec and Konecranes will convene an EGM to decide upon the contemplated merger. The EGMs are expected to be held in December 2020. The companies will publish notices to their respective EGMs through separate stock exchange releases.

The merger plan, which is included as Annex 1 to this stock exchange release, contains information on certain terms and conditions of the contemplated merger, including the merger consideration to Konecranes’ shareholders. Further information about the contemplated combination, the merger and the Future Company will also be available in a merger and listing prospectus expected to be published in December 2020 by Cargotec prior to the EGMs of Cargotec and Konecranes.

Approvals and Timing

The completion of the contemplated merger 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, the obtaining of necessary merger control approvals, the availability of the financing agreed for the purpose of the merger and that no material adverse effect has taken place before the completion of the merger. As the transaction is proposed to be implemented by way of a statutory merger of Konecranes into Cargotec, it is also subject to a statutory creditor hearing process of Konecranes’ creditors. All conditions for the completion of the merger are set out in the merger plan, which is included as Annex 1 to this stock exchange release.

Subject to all conditions for completion being fulfilled, the completion of the merger is expected to occur in the fourth quarter of 2021. Trading in the new shares of Cargotec to be issued to Konecranes’ shareholders is expected to begin on or about first trading day following the completion of the merger.

The Combination Agreement

Cargotec and Konecranes have on 1 October 2020 entered into a Combination Agreement, pursuant to which Cargotec and Konecranes have agreed to combine their business operations through a statutory absorption merger pursuant to the Finnish Companies Act.

The Combination Agreement contains certain customary representations and warranties as well as undertakings, such as, inter alia, each party conducting its business in the ordinary course of business before the completion of the merger, keeping the other party informed of any and all matters that may be of material relevance for the purposes of effecting the completion of the merger, preparing the necessary regulatory filings and notifications in cooperation with the other party and, cooperating with the other party in relation to the financing of the Future Company r.

In addition, Cargotec and Konecranes each undertake not to solicit proposals competing with the transaction agreed in the Combination Agreement.

Moreover, Cargotec and Konecranes have given each other certain customary representations and warranties related to, inter alia, authority to enter into the Combination Agreement, due incorporation, status of the shares in the respective company, preparation of financial statements and interim reports, compliance with applicable licenses, laws and agreements, legal proceedings, ownership of intellectual property, taxes, employees and the due diligence materials provided to the other party.

With the exception of certain jointly incurred costs, Cargotec and Konecranes shall bear their own fees, costs and expenses incurred in connection with the merger.

The Combination Agreement may be terminated by mutual written consent duly authorised by the Boards of Directors of Cargotec and Konecranes. Each of Cargotec and Konecranes may terminate the Combination Agreement inter alia if (i) the merger has not been completed by 30 June 2022 (or it becomes evident that the completion cannot take place by that time); (ii) in case of a material adverse effect after the signing date that is incapable of being cured, all as defined, and following the consultation and other procedures described, in the Combination Agreement; (iii) the EGMs of Cargotec and Konecranes have not considered the merger in accordance with the Combination Agreement or if, upon consideration by the relevant EGM, they shall have failed to duly approve the merger; (iv) if any governmental entity (including any competition authority) gives an order or takes any regulatory action that is non-appealable and conclusively prohibits the completion of the merger; or (v) in case of a material breach by the other party of any of the representations, warranties, covenants or undertakings under the Combination Agreement if such breach has resulted, or could reasonably be expected to result, in a material adverse effect, as described in the Combination Agreement. In the event the Combination Agreement is terminated due to certain reasons specified in the Combination Agreement, the parties have agreed on the payment of a break-up fee and cost coverage of an agreed amount.

Fairness Opinion

The Board of Directors of Cargotec has concluded that the consideration being paid in connection with the transaction is fair from a financial point of view to the shareholders of Cargotec. The Board of Directors of Cargotec made its assessment after taking into account several factors including, but not limited to, the fairness opinion of Advium Corporate Finance delivered to the Board of Directors of Cargotec on 1 October 2020.

The Board of Directors of Konecranes has concluded that the consideration being paid in connection with the transaction is fair from a financial point of view to the shareholders of Konecranes. The Board of Directors of Konecranes made its assessment after taking into account several factors including, but not limited to, the fairness opinion of J.P. Morgan delivered to the Board of Directors of Konecranes on 1 October 2020.

Financing

In order to support and finance the completion of the merger, Cargotec and Konecranes have entered into re- and back-up financing agreements with Nordea Bank Abp (“Nordea”). The merger financing arrangements comprise an EUR 400,000,000 term loan facility for Cargotec and EUR 935,000,000 term loan facilities for Konecranes exclusively arranged and underwritten by Nordea. The facilities may be used to refinance the companies’ existing indebtedness in connection with the merger, potential cash redemptions of Konecranes’ shares as well as Konecranes’ extra distribution proposed to be distributed prior to the completion of the merger.

Konecranes intends to seek certain consents and waivers in respect of its existing indebtedness and such indebtedness in relation to which requisite consents have been obtained prior to the completion of the merger, together with the indebtedness refinanced in connection therewith, will transfer to the Future Company.

Shareholder Support

Shareholders holding in aggregate approximately 44.8 percent of the shares and approximately 76.3 percent of the votes in Cargotec, including Wipunen varainhallinta oy, Mariatorp Oy, Pivosto Oy, KONE Foundation, Ilmarinen Mutual Pension Insurance Company, Elo Mutual Pension Insurance Company and Varma Mutual Pension Insurance Company, and shareholders holding in aggregate approximately 27.4 percent of the shares and votes in Konecranes, including HC Holding Oy Ab, Solidium Oy, Ilmarinen Mutual Pension Insurance Company, Varma Mutual Pension Insurance Company, Holding Manutas Oy, Elo Mutual Pension Insurance Company and Security Trading Oy, have undertaken, subject to certain customary conditions, to attend the respective EGMs of Cargotec and Konecranes and to vote in favour of the combination.

Advisors

Cargotec is being advised by Advium Corporate Finance Ltd. as lead financial advisor, and Castrén & Snellman Attorneys Ltd and Freshfields Bruckhaus Deringer LLP as legal advisors. Konecranes is being advised by Access Partners Oy as lead financial advisor and J.P. Morgan Securities plc as financial advisor, and Hannes Snellman Attorneys Ltd and Skadden, Arps, Slate, Meagher & Flom LLP as legal advisors. In addition, Nordea Bank Abp is acting as financial advisor to Cargotec on certain matters.

CARGOTEC CORPORATION
Board of Directors

KONECRANES PLC
Board of Directors

Analyst and Investor Webcast and Media Conference

The Chairmen, CEOs and CFOs of Cargotec and Konecranes will host the following conferences to discuss the announcement today, 1 October 2020:

A joint analyst and investor call at 9:30-10:30 a.m. EEST. The event will be hosted by the CEOs and the CFOs of the companies and webcast at: http://bit.ly/AnalystEvent_011020. The language of the event is English.

The event can also be attended by telephone, please dial in 5 to 10 minutes before the beginning of the event. Telephone numbers:

Conference code: 551246

A joint press and media conference at 11 a.m.-noon EEST at Terassisali at Finlandiatalo, in Helsinki at Mannerheimintie 13 E. The event will be hosted by the Chairmen and the CEOs of the two companies and streamed at: http://bit.ly/MediaEvent_011020. The language of the event is English.

The event can also be attended by telephone, please dial in 5 to 10 minutes before the beginning of the event. Telephone numbers:

Conference code: 991489

The presentation slides will be available at www.cargotec.com and www.konecranes.com.

DISTRIBUTION:
Nasdaq Helsinki
Major media
www.cargotec.com

Information on Cargotec and Konecranes in Brief

Cargotec (Nasdaq Helsinki: CGCBV) enables smarter cargo flow for a better everyday with its leading cargo handling solutions and services. Cargotec's business areas Kalmar, Hiab and MacGregor are pioneers in their fields. Through their unique position in ports, at sea and on roads, they optimise global cargo flows and create sustainable customer value. Cargotec’s sales in 2019 totalled approximately EUR 3.7 billion and it employs around 12,000 people. www.cargotec.com

Konecranes is a world-leading group of Lifting Businesses™, serving a broad range of customers, including manufacturing and process industries, shipyards, ports and terminals. Konecranes provides productivity enhancing lifting solutions as well as services for lifting equipment of all makes. In 2019, Group sales totaled EUR 3.33 billion. Including MHE-Demag, the Group has around 17,300 employees in 50 countries. Konecranes shares are listed on the Nasdaq Helsinki (symbol: KCR). www.konecranes.com

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