2008: The construction machinery industry enters a new round of integration

At the beginning of the new year of 2008, the construction machinery industry continuously broke news of changes in the equity of leading companies, including Caterpillar, Manitowoc, Xugong, Liugong, Zoomlion, Shangong and Shantui. Approved well-known enterprises at home and abroad. Changes in the ownership of leading enterprises will inevitably lead to major changes in the pattern of China's construction machinery industry.

Stepping out of the joint venture bureau's domestic companies to find their way out of the company: Xu Gong

XCMG has always been one of the high-profile enterprises in the construction machinery industry in China. However, in recent years, its original system has not adapted to the new market situation and has become a bottleneck restricting its development. For this reason, Xugong has been seeking changes in the system. In 2005, XCMG had hoped to introduce the Carlyle Fund to help it out of the institutional dilemma. However, due to various reasons, the relevant state departments have not yet approved the investment.

Restructuring is still the top priority for Xu Gong. Not long ago, Xu Min Chairman Wang Min revealed to the outside world that Xugong has officially decided to withdraw from Caterpillar (Xuzhou) Co., Ltd. and plans to enter the field of excavators and heavy trucks. This statement came out and the industry was excited.

The first few cases of joint ventures between China's construction machinery companies and foreign countries, due to lack of experience, are generally "dancing with the wolf," and many companies have planted. However, the cooperation between Xugong and Caterpillar seems to have been good to the outside world, but this is not the case.

In 1995, XCMG and Caterpillar jointly invested 82 million U.S. dollars and set up a 4:6 shareholding company to form a joint venture company, Caterpillar (Xuzhou) Co., Ltd. With the increase in capital and shareholding in recent years, the shareholding of XCMG has dropped to 15.87%, and it can only earn tens of millions of profits each year. Not only has the joint venture's share been squeezed, but the original intention of Xugong's "market-for-technology" has not been realized. Wang Min said that Xugong decided to transfer all his shares to Caterpillar and seek new development on his own.

At present, excavator market situation is very good. Many enterprises that did not originally produce excavators are trying to enter the excavator market. XCMG is no exception. According to Wang Min, XCMG is about to set up its own excavator company. The registered capital of the new company is tentatively set at 50 million yuan, and the first phase of the investment is 200 million yuan. At present, relevant procedures have already begun.

Another market that Xugong is concerned about is the heavy truck market. However, XCMG itself does not qualify for heavy truck production, so it intends to make up for the gap by acquiring related companies. It is understood that XCMG is currently in contact with a domestic company with heavy truck qualifications and operating conditions are not good, is expected to complete the acquisition this year. As for which company, Xugong has not announced yet.

Change the status quo and use its own power to seek new development. XCMG has provided an example in this respect for other companies that have failed to achieve the original intention of the joint venture, and in particular those that may be "malicious acquisitions" by foreign investors.

Into the Chinese enterprises foreign investment menacing representative companies: Caterpillar, Manitowoc

Unlike XCMG and Caterpillar who broke up, Shandong Shangong Machinery Co., Ltd. has been seeking deeper cooperation opportunities with Caterpillar. In February this year, with the approval of the Ministry of Commerce and the Shandong Provincial Government, Caterpillar formally acquired the remaining 60% of shares of Shan Gong. At this point, Caterpillar officially completed the complete merger of Shangong.

In March 2005, Caterpillar invested approximately 1.8 million yuan to acquire 40% of Shangong's shares, including 20% ​​of state-owned shares. Subsequently, the two sides formed a joint venture Shandong Shangong Machinery Co., Ltd. Based on the contract between the two parties, Caterpillar has the right to acquire the remaining 60% of shares in the next 3 years. This year, the acquisition finally came to an end. With a wholly-owned acquisition of Shangong, Caterpillar will use its mature sales experience and service network in the domestic market to lay the foundation for the expansion of its loader business in China.

As we all know, Shandong is a major province of China's construction machinery. Shangong, Lingong, Shantui, Foton Lovol and other companies are all first-class enterprises in the industry. Wang Chunquan, chairman of ShanGong, said, “If you don’t cooperate with Caterpillar, it may be that Shangong still lives under the brilliance of the provincial brothers Shandong Linggong and Shantui.” Shangong hopes to take this opportunity to obtain huge sums of money and introduce advanced technologies. Process and production technology, and open the international market by incorporating brands into the Caterpillar system.

Another notable example of this year's foreign capital injection of Chinese companies occurred in April. The United States Manitowoc Crane Group acquired a 50% stake in Shandong Taidong Yuehong Heavy Industry Co., Ltd. and set up a joint venture. This is Manitowoc's first direct acquisition of Chinese companies in the past ten years since entering the Chinese market.

Manitowoc is now the world's largest crane company and entered the Chinese market in 1997. In 2001, it acquired Potain's Zhangjiagang Potan Construction Machinery Co., Ltd. in Zhangjiagang through the acquisition of French Potain, and owned its first factory in China. In 2006, Manitowoc invested and built a second factory in Zhangjiagang.

Dongyue Heavy Industry was once China's fourth-largest crane production company. Its leading product is 8-50 tons of mobile cranes and truck cranes. However, the current market demand is shifting to the medium-large tonnage, and 1,500 tons of cranes have been developed internationally. The advantages of Dongyue Heavy Industry are gradually weakening. It is also very hopeful that development opportunities will be obtained through restructuring.

After the acquisition of Dongyue Heavy Industry, Manitowoc will use its model of operating the Zhangjiagang factory to start with technological transformation to help Dongyue Heavy Industry achieve international technical standards and develop large tonnage truck cranes. After maturity, Dongyue Heavy Industries will integrate its products into its global sales network.

As the crane industry is subject to the regulations of the national automobile industry policy, the proportion of foreign investment may not exceed 50%, but this does not prevent foreign investment in the industry's M & A enthusiasm. In 2002, the Beijing Crane Factory and Japan's Donoda formed a joint venture to establish Kita-Tadao (Beijing) Crane Co., Ltd., becoming the first example of foreign capital entering the domestic crane industry; in April 2006, it was the third largest crane company in China at the time, the Yangtze River in Sichuan. 50% of the shares of Crane Co., Ltd. were acquired by Terex; Zoomlion also reported news of cooperation with foreign investors after it acquired Hunan Puqi Construction Machinery Co., Ltd.

Due to its advantage in terms of capital, the acquisition of Chinese companies by foreign-funded enterprises is directly targeted to the industry's leading companies. This is the quickest and most secure way for them to open the Chinese market. For Chinese companies, how to make full use of foreign technology, management advantages and their overseas sales network is the key to whether they can make progress in the joint venture process.

Layout of New Products Domestic Enterprises M&A Focused Enterprises: Liugong, Zoomlion, Shantui

On February 22 this year, Liugong Corporation signed an agreement with Yan Zhen Chong Anli Construction Machinery Co., Ltd. to acquire the latter's 100% equity for 89.57 million yuan. In March, Anhui Liugong Crane Co., Ltd. was formally established. In the first month, it delivered an outstanding volume of 151 sets per month and sold 153 sets. This is one of Liugong's important strategic measures to broaden its product line and achieve its 2012 sales revenue target of 30 billion yuan.

The merger and reorganization of Liugong in Anhui is only a phased achievement of the operation of the Liu salary. As early as 2000, it began to implement plans to broaden its product chain and layout nationwide. It has established Jiangyin Liugong Road Machinery Co., Ltd., Shanghai Liugong Forklift Co., Ltd., Yangzhou Liugong Construction Machinery Co., Ltd., Jiangsu Liugong Machinery Co., Ltd., etc. A number of holdings, equity participations and joint ventures, and subsidiaries in Australia and India.

At the end of 2007, the investment agreement for the “Liugong North Construction Machinery R&D and Manufacturing Base” was officially signed in Tianjin.

One of the most important acquisition forces this year is Zoomlion from Hunan. In just one week, Zoomlion completed three consecutive unparalleled mergers and acquisitions. On March 26, Zoomlion issued an announcement that it will acquire 100% equity of Shaanxi Xinhuanggong Machinery Co., Ltd. for RMB 34 million and plan to increase its capital by RMB 190 million. On April 2nd, it issued an announcement again, announcing that joint investors such as Hony Capital would purchase a 100% stake in Italian machinery and equipment manufacturing company (CIFA.spa), which is mainly engaged in concrete equipment, by bidding. Zoomlion acquisition share will account for 60%. Two days later, it announced that it had signed a letter of intent with the People's Government of Jinshi City in Hunan Province and Dongfeng Motor Company to acquire the Hunan Automobile Axle Factory under Dongfeng Motor’s subsidiary.

As early as last summer, Zoomlion showed great interest in the excavator market. The acquisition of New Huanggong not only can quickly enter the excavator market, but also will have the opportunity to enter the field of earth and stone machinery such as bulldozers and loaders. It is of great significance to broaden the product line. However, compared with Puyi, the new yellow wage quality is obviously deviated, and it is difficult to make a difference in the short term after the completion of the acquisition. The first task of Zoomlion after the capital increase is to solve its debt problem, and to enter the normal operation stage, it is estimated that the company will need to follow-up. There is a big investment.

Zoomlion’s acquisition of CIFA is of great significance. CIFA is the third largest producer of concrete machinery in the world. If the acquisition is successful, Zoomlion will not only replace Sany Heavy Industry’s ranking third in the global concrete machinery industry, but will further narrow the gap with Putzmeister, the world’s number one German. In addition, Zoomlion can also use CIFA's existing sales channels to expand its market share in Europe.

Shantui purchased 100% equity of Hubei Chutian Construction Machinery Co., Ltd. on May 16th for 15 million yuan. After the completion of the acquisition, it invested 34.5 million yuan in cash to increase its capital and expand its shares, and restructured it into the “Zeshan Chu”. Tian Construction Machinery Co., Ltd.". Shantui will also receive a 7.71% stake in Shandong Ruichi Machinery Co., Ltd. held by Taian New Linde Investment Co., Ltd. for a price of 2.7 million yuan. After the completion of the acquisition, Shantui’s shareholding in Deep Chi Machinery increased to 24.4%. The two acquisitions of Shantui are aimed at perfecting its spare parts production network and improving its strategic layout.

The successive acquisitions by domestic companies have added new uncertainties to the changing trend of the industry landscape. Did the changes in the equity of many leading companies declare the beginning of the reshuffle of the construction machinery industry? It is too early to give such a conclusion. However, in 2008, it will be an uneasy year for the Chinese construction machinery industry.

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