Toyota's Expansion in Heavy Equipment

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Japanese auto-parts manufacturer Toyota Industries has announced its intention to purchase Fairview, Oregon-based equipment manufacturer Cascade Corporation (UNKNOWN: CASC.DL) in a cash-for-stock tender offer that values the company at nearly $760 million. If the tender offer is successful, Cascade Corporation will become a wholly-owned subsidiary of Toyota Industries and cease to trade on the public markets. Although the deal is subject to several closing conditions, it appears likely to be finalized by the end of the third quarter of 2013.

About Toyota Industries and Cascade Corporation

Often confused with Toyota Motor Company, Toyota Industries is a Japanese auto-parts and equipment manufacturer that once owned the global automotive giant. Today, the company focuses mainly on the manufacture and distribution of parts and equipment for cars, trucks, farm machinery and construction vehicles. As a diversified manufacturer, Toyota Industries operates several distinct divisions that make transmission parts, attachments, piping, brake components, body parts and more. It sells these products in dozens of countries around the world. In Japan, Toyota Industries also maintains a significant logistics infrastructure through which it distributes aftermarket parts and equipment.

Cascade Corporation is an equipment manufacturer that specializes in producing components and aftermarket parts for lift trucks, farm machinery and other heavy-duty equipment. It is recognized as one of the leading makers of such parts for specialized lift trucks, including those that are capable of moving bulky loads without the assistance of pallets. Cascade supplies a wide range of business customers, including waste-management firms, construction companies, warehousing and logistics concerns, and global shipping and freight companies. It employs nearly 2,000 people in Oregon and earned $53.4 million on $540.8 million in gross revenues in 2012.

How the Deal Is Structured

Under the terms of this merger, Toyota Industries will issue a tender offer in the amount of $65 per Cascade share. The American company's shareholders will receive this amount in cash and immediately surrender their shares to Toyota. Relative to Cascade's current closing price of $64.62, this $65-per-share offer represents a premium of less than .2 percent. Relative to the company's pre-announcement closing price of $55.08, the offer provides shareholders with a premium of about 18 percent.

The tender offer will terminate at the discretion of Toyota Industries. Alternatively, it will expire after the tender of all outstanding Cascade shares. Any shares that are not tendered as part of this offer will be converted into warrants that entitle their holders to cash payments of $65 per share. These warrants can be redeemed at any time and will not expire. Once the tender offer has completed, the merger will be finalized. Although this is currently scheduled for February 28, 2013, the exact date is subject to change.

Complications and Legal Issues

This deal is contingent upon approval by U.S. antitrust authorities as well as the consent of a majority of Cascade's shareholders. At this time, it appears that the authorities will not stand in the way of this merger's completion. Likewise, it appears likely that a majority of Cascade's shareholders will tender their shares before the self-imposed February 28 deadline. Additionally, there are no legal actions currently pending against Toyota Industries or Cascade Corporation. As such, it appears likely that the deal will close without further delay.

Long-Term Prospects and Likely Outcomes

For over a century, Toyota Industries has been a powerful force in the Japanese heavy-equipment sector. This acquisition provides it with a small but valuable foothold in a specialty niche that is often overlooked in favor of more dynamic industries. Generally speaking, the U.S. heavy-industry sector was punished by the cyclical downturn that followed the recent financial crisis. Companies like Oak Brook, Illinois-based Great Lakes Dredge and Dock Corporation (NASDAQ: GLDD) lost much of their market capitalization during the recession. In 2008, GLDD went from around $8 to a low of under $3.  GLDD has since come back but many were forced to take on substantial amounts of debt to remain solvent. This makes them attractive to larger, healthier entities.

In the near future, it appears that cyclical factors might drive Toyota Industries and other international concerns to make targeted acquisitions in the U.S. and other markets. As Japan and the Eurozone continue to stagnate, other developed and developing economies are showing signs of life. It would not be surprising to see Toyota swoop in to purchase a heavy-machinery company like Great Lakes Dredge and Dock. With a relatively small debt load and a decent amount of cash on hand, Toyota finds itself in an enviable position.

Investors who believe that a cyclical upturn awaits the world's materials companies and heavy-equipment manufacturers may find Cascade Corporation attractive at these levels. Any news-related dips could increase the short-term return on this deal for attentive arbitrage investors. In the coming weeks, any news that the tender offer will be extended could engender a temporary buying opportunity in Cascade's shares.

 


mthiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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