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US, UK regulators sink merger of Finnish port crane makers

Cargotec and Konecranes, two of the largest global manufacturers of shipyard and container handling cranes for ports, announced Tuesday they are abandoning their planned merger after U.K. antitrust regulators blocked the transaction and the U.S. threatened legal action.

The two Finnish companies agreed in October on a $5 billion deal to create a combined material handling group.

The U.K. Competition & Markets Authority said it blocked the deal because proposed remedies to remove all overlapping businesses of the two companies, which were accepted by the European Commission, didn’t allay the government’s concerns about concentration of market power.

The regulator determined the merger would harm competition because both companies compete closely for business in the U.K. and would leave ports and terminal operators with few substitute suppliers. It rejected arguments by Cargotec and Konecranes that there would be an increased competitive threat from Chinese suppliers such as ZMPC in the future. 

The U.S. Department of Justice also threatened to sue over concerns the combination would eliminate competition for four types of equipment. It informed the parties that proposed mitigation measures were not sufficient to protect crane users and consumers.

“The Justice Department’s Antitrust Division will vigorously investigate potential violations of our antitrust laws, no matter the industry, no matter the company and no matter the individual,” Attorney General Merrick Garland said in a statement. “The proposed merger of these two shipping equipment giants would have harmed American consumers. It threatened the global supply chain and the free and fair markets upon which the integrity of our economy depends.”

Having the attorney general comment on a case that isn’t in the national spotlight indicates what a high priority the Biden administration has placed on preventing industries from being dominated by a few companies, which officials say ultimately results in customers and consumers paying higher prices. The White House officials say they are using enforcement of competition laws as a way to quell record inflation, which they claim is due in part to dominant corporations in taking advantage of supply chain constraints to raise prices and increase profit margins. 

Biden’s M&A Wall

In January, the Justice Department and Federal Trade Commission launched a joint public inquiry aimed at strengthening enforcement against illegal mergers. Administration officials argue that many industries are becoming more concentrated and less competitive, which reduces choice and economic gains for consumers, workers, entrepreneurs and small businesses. The problems are likely to persist or worsen due to an ongoing merger surge that has more than doubled merger filings from 2020 to 2021, they said. The agencies are soliciting public input, including four listening sessions scheduled during the next 30 days, on ways to modernize federal merger guidelines and prevent what officials call anticompetitive deals. 

Last month, the FTC helped block the merger of Rhode Island’s two largest health care providers and also forced defense contractor Lockheed Martin to terminate its proposed acquisition of Aerojet Rocketdyne Holdings. Nvidia also gave up its proposed acquisition of Arm Ltd. from SoftBank Group after the FTC filed a complaint to block what would have been the largest merger in the semiconductor sector.

Justice Department officials said the combination of Cargotec and Konecranes would have culminated decades of consolidation in the port crane and cargo handling sectors because they would have retained the strong parts of both businesses and sold off the least desirable assets to placate regulators.

“The department will not accept patchwork settlements that do not replace the competition that is lost by a merger,” said Assistant Attorney General Jonathan Kanter, who heads the Antitrust Division. 

U.S. prosecutors said the merger would have led to consolidation in the manufacture and supply of straddle carriers (lift trucks that straddle a container and move it within a port terminal), rubber-tired gantry cranes (large four-sided mobile cranes used to stack containers, often in rows several units wide and tall, and transfer them to trucks), automated stacking cranes and rail-mounted gantry cranes, which travel between container stacks on rail tracks rather than on tires. 

Cargotec and Konecranes are leaders in automating port operations and reducing carbon emissions by electrifying equipment, which the Justice Department identified as “megatrends” that are likely to drive purchasing decisions from port customers for many years. 

The Georgia Ports Authority recently ordered nine electric Konecranes rubber-tired gantry cranes for the Port of Savannah. When all are in service, Savannah will have a fleet of 210 Konecranes RTGs in operation. 

The two companies had committed to divest the Konecranes Lift Truck business and Kalmar Automation Solutions. Competition authorities in nine other jurisdictions, including China, had approved the planned merger. 

“The board of Cargotec is convinced that the merger would have created substantial value for the entire industry as well as shareholders by improving sustainable material flow. The combination would have created a strong European company enabling accelerated shared abilities to innovate without harming competition,” said Chairman Ilkka Herlin. “We have done all we could to realize the merger and are disappointed that our plans have had to be abandoned. After a long and extensive regulatory review process and merger planning preparations, it is time to shift our full focus on executing Cargotec’s own strategy and value-creation opportunities.”

Cargotec said it will focus on its profitable core businesses — Hiab, Kalmar Mobile Solutions and Kalmar’s horizontal transportation business — which had 2.6 billion euros ($2.9 billion) in sales last year, representing 80% of total revenue. Officials said they would initiate an evaluation for the potential sale of MacGregor, a maritime cargo and load handling subsidiary. Capital expenditures will be aimed at acquisitions and R&D related to automation, robotics, digitization and zero emissions.

Konecranes Chairman Christoph Vitzthum also expressed disappointment in the outcome, adding that “further remedies would have not been in the best interest of Konecranes’ shareholders as they would have changed the strategic rationale of the transaction.”

The companies said they booked $125 million in transaction costs.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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