Terex Corporation

1947–1993

Terex Corporation designs, manufactures, and markets heavy-duty, off-highway construction, earth-moving, and material-handling equipment. In 1993, Terex and its affiliates also owned more than 50 percent of the Fruehauf Trailer Corporation, the world's largest manufacturer of truck trailers. Fruehauf operates in 19 countries and manufactures more than 325 models of truck trailers, including van, refrigerated van, platform, tank, liquid and dry-bulk tank trailers. Approximately 19 percent of the new trailer market in the United States belongs to Fruehauf. The truck maker also owns more than 20 percent of Société European de Semi-Remorques, the leading manufacturer of trailers in Europe.

Although founded in the 1920s, Terex Corporation evolved mainly from numerous acquisitions made by Chairman of the Board Randolph W. Lenz in the 1980s. Lenz, who was the company's principal shareholder with 54 percent, continued to buy such distressed or bankrupt companies into the 1990s, adding Mark Industries and the material-handling division of the Clark Equipment Company.

The story of Terex is also the story of Lenz, an ex-Marine with a degree in psychology from the University of Wisconsin. Born in 1947, Lenz began buying and selling real estate in the late 1960s. He served as president of Milwaukee-based Ranmar Enterprises, Inc. and the Network Investment Real Estate Corporation, in Brookfield, Wisconsin. It was in 1981 that Lenz moved into heavy-equipment manufacturing, buying the assets of the FWD Corporation, a bankrupt manufacturer of snowplows and fire trucks in Clintonville, Wisconsin. Lenz continues to hold the position of chairman of FWD.

Based on his success with FWD, Lenz began to follow a calculated strategy of buying distressed companies at fire-sale prices when he bought Northwest Engineering Co. in 1983. Northwest Engineering had been manufacturing cranes, power shovels, and draglines for more than 50 years, but the company had declared bankruptcy and was only three months from liquidation. When Lenz stepped in, however, the company's focus was changed from manufacturing and assembling new equipment to spare parts.

Northwest Engineering, in turn, bought the construction-machinery division of the Pennsylvania-based Bucyrus-Erie Company in March of 1985. At its peak, Bucyrus-Erie had employed more than 700 people, but the company had shut down its production lines in 1983, and the employees that remained were concentrating on spare parts and service. Less than a month out of bankruptcy, Northwest Engineering paid less than $9 million for a company with $20 million a year in sales. Lenz then revived the company's defunct Dynahoe product line: the new Bucyrus Construction Products (BCP) division of Northwest Engineering produced its first backhoe loader in November of 1985. By 1988, Industry Week reported that BCP held a 40 percent share of the market in which its products were sold.

Lenz and Terex came together in 1986 when Northwest Engineering purchased Terex USA from General Motors Corp. GM had acquired Terex, a builder of heavy-duty, earth-moving equipment, in 1953. By 1979, Terex had annual sales in excess of $500 million, and employed more than 5,000 people in the United States, Brazil, and the United Kingdom.

Less than a month out of bankruptcy, Northwest Engineering paid less than $9 million for a company with $20 million a year in sales.

1980–1988

In 1980, in an effort to focus on its automotive business, General Motors agreed to sell Terex to IBH Holding AG, a maker of light- and medium-duty construction equipment in the former Federal Republic of Germany. However, in 1983 IBH Holding filed for bankruptcy, and with pressure from the United Auto Workers, ownership of Terex reverted to General Motors. The company was reorganized as Terex Equipment Limited, a manufacturing subsidiary in Scotland, and Terex USA, a distributor for Terex products in the Western Hemisphere. Terex USA also made some equipment and spare parts at a factory in Ohio.

When Northwest Engineering bought Terex USA in 1986, the agreement included an option to purchase Terex Equipment Limited. Northwest Engineering exercised that option in 1987. Then, in a controversial move, Lenz closed the Terex plant in Ohio, and moved all operations to Scotland. Among the items manufactured by Terex Equipment Limited were articulated dump trucks, wheeled loaders, scrapers, and other large construction vehicles.

In 1987 Northwest Engineering paid $21.9 million for Koehring Cranes & Excavators and Benton Engineering, both acquired from Koehring Co., a subsidiary of AMCA International Finance Corporation. A Financial World correspondent reported that Koehring had been losing almost $1 million a month for five years, and declared Lenz was able to "get well-respected Koehring excavators and Lorain crane brand names for a song." Five years later the Terex concern sold what had become the Benton Harbor Engineering Division to pay off debt associated with the Koehring purchase.

The next move for Northwest Engineering came in 1988 when it bought Unit Rig and Equipment Company which was also involved in bankruptcy proceedings. Based in Tulsa, Oklahoma, Unit Rig manufactured Lectra Haul trucks and Dart loaders and haulers. That same year, Lenz changed the company's name to Terex Corporation, and Northwest Engineering became a division of Terex.

A Forbes reporter described Terex's rise: "Randolph W. Lenz was an obscure Wisconsin businessman in 1983 when he was struck by a simple idea. Some of the best buy-out values in the country, Lenz reasoned, could be found among bankrupt and near-bankrupt manufacturers of earth-moving equipment companies with low prices, cleansed assets and a newly pragmatic work force of survivors. From such down-and-outers Lenz, in just six years, has built Terex Corp."

A Mergers & Acquisitions correspondent--to whom Lenz described his strategy as one of "pragmatic opportunity"--outlined what happened after a Terex takeover: "A typical Terex acquisition means hard work after the deal is completed. Once in-house, the new business, typically in the lower technology end of the equipment field, will be streamlined to achieve production efficiencies, eliminate marginal product lines, improve marketing and reorient the work force toward the revamped operating mode." Forbes analysts were more blunt in their assessment, however, stating, "Lenz ... has methodically consolidated factories, slashed payrolls and shrunk product lines to those few profitable niches that his companies still retain."

1928–1993

In 1989 Terex nearly tripled its size with the acquisition of yet another famous brand name. Debt-ridden Fruehauf Corp.--arguably the most recognized brand of trailer in the world--sold its trailer and maritime businesses to Terex for $231 million. Fruehauf had dominated the pre-World War II trucking industry with a market penetration estimated at nearly 90 percent. Despite trucking deregulation, an economic downturn, and increased competition in the early 1980s, Fruehauf was still reporting record annual profits. However, Fruehauf fell victim to the downside of the 1980s' practice of funding massive growth with high debt.

In 1986 corporate raider Asher Edelman purchased 9.5 percent of Fruehauf's stock--then selling for little more than $20 a share--and announced his intention to take over the company. In order to block the move, Fruehauf borrowed nearly $1.4 billion to buy back its own stock and take the company private. Stockholders who sold their stock for cash received almost $50 per share because of the attempted takeover--Edelman reportedly made a profit of almost $100 million. This left Fruehauf heavily in debt, with interest adding up to more than $100 million per year, substantially more than pre-buyout profits. By 1989, five years after posting record profits, Fruehauf was losing nearly $1 million a week, despite having raised $750 million by selling several of its smaller subsidiaries.

Terex completed its purchase of what was named the Fruehauf Trailer Corporation in July of 1989. By September, the wholly owned subsidiary was doing well enough for Terex to pre-pay $19 million in debt, and in 1990, Terex opened a new 100,000 square foot manufacturing facility in Indianola, Iowa, to build foam-insulated refrigerated vans.

In 1991 Fruehauf trailer operations accounted for nearly two-thirds of Terex's $784 million in sales. Terex also took Fruehauf public in 1991 with an initial public offering of four million shares, and began a program to convert its most effective company-owned distribution branches in the United States into independent dealerships. However, Fruehauf incurred heavy losses in 1991 and 1992, primarily attributed to a worldwide economic slowdown. In early 1993, it was reported that Terex was considering selling Fruehauf.

Two other Terex acquisitions were completed in the early 1990s. Terex added Mark Industries to its Heavy Equipment Group in 1991. The company, based in Brea, California, manufactured aerial lift equipment, including scissor lifts and boom lifts, used in construction, repair, and maintenance work in many industries. In 1992 Terex added perhaps the best-known brand of forklifts and lift trucks to its Materials Handling Group with the purchase of the material handling division of Clark Equipment Company.

Clark invented the forklift in 1928. When Terex bought the line in 1992, Clark forklifts and lift trucks were the top selling brand in North America. The Clark Materials Handling Company, with a worldwide network of independent dealers, was also a leading manufacturer and distributor of forklifts in the European market.

1983–1995

Soon after the purchase, Terex moved to solidify its leadership in the North American market by moving production of its internal combustion forklift trucks from Korea to Lexington, Kentucky. At the same time, Terex announced plans to invest $25 million between 1992 and 1995 to improve its forklifts and lift-trucks with advanced ergonomic features and reduced noise levels. Clark Materials Handling continued to build forklifts in Korea--in a partnership formed with Samsung in 1986--to serve the Asian market.

Despite its success in revitalizing financially troubled companies, several financial analysts in the early 1990s were concerned about Terex's ability to cope with the enormous debt it had assumed in amassing its acquisitions. At the end of 1991, Terex had long-term debt of $189.3 million. With the truck trailer industry experiencing its worst year since 1983, along with stiff price competition among manufacturers, Terex also had a net loss for that year of $33.4 million. Some analysts urged Terex to issue more stock and use the proceeds to pay off some if its long-term debt. As Michael K. Ozanian assessed in Financial World, "With its track record, Wall Street would love to buy Terex equity, particularly if the proceeds were used to retire debt." However, Lenz reportedly did not want to dilute his own holdings and resisted that measure.

Increased highway construction and renewed interest in mass transit in the United States in 1992 and 1993 were positive signs for Terex. Much of its heavy equipment, such as graders and loaders, is used in highway and mass transit construction, while improved roadways also could increase the trucking industry's efficiency, spurring the demand for trailers.