Shantui Terminates Acquisition of Dongyue Heavy Industry

　　According to an announcement on January 24, 2013, the board of directors of Shantui reviewed and approved the "Proposal on Capital Increase and Acquisition of 51% Equity of Manitowoc Dongyue Heavy Industry Co., Ltd. by a Wholly-owned Subsidiary". The company planned to acquire 51% equity of Dongyue Heavy Industry through a capital increase of 216.8 million yuan by its wholly-owned subsidiary Shantui Investment Co., Ltd. After the transaction, Dongyue Heavy Industry would become a controlled subsidiary of Shantui, and Shantui would thus enter the crane industry.

　　On the evening of September 23, 2013, Shantui announced that due to the current weakening demand in the construction machinery market and the fact that the preconditions related to the equity acquisition have not been met, it would terminate the original transaction of acquiring 51% equity of Dongyue Heavy Industry through a capital increase by its wholly-owned subsidiary Shantui Investment.

　　Impact: Limited for Now

　　Shantui stated that the termination of this acquisition project has not had an adverse impact on the company's production, operations, or profits.

　　As a giant in the machinery industry, the company has strong market competitiveness in earthmoving machinery, road machinery, and concrete machinery, but it lags significantly behind competitors in the crane sector, which may affect its future layout in the crane field.

　　Reason: External Environment Not Optimistic

　　Financial data shows that Dongyue Heavy Industry lost 84.5345 million yuan in 2011 and 85.7755 million yuan in the first nine months of 2012. Shantui stated that Dongyue Heavy Industry's losses would have a certain negative impact on the company's financial condition and operating results in the short term.

　　The annual report shows that in the first half of the year, Shantui's operating revenue was 5.777 billion yuan, a year-on-year decrease of 0.34%; net profit was 33.3092 million yuan, a year-on-year decrease of 46.64%.

　　Since the beginning of this year, due to the economic slowdown, severe inventory buildup in the construction machinery industry, and no obvious improvement in downstream construction starts, the overall sales volume of the construction machinery industry has not recovered, and the industry remains at the bottom. This can be seen from the interim results of leading construction machinery companies. Zoomlion's net profit in the first half was 2.906 billion yuan, down 48.31% year-on-year; Sany Heavy Industry's net profit was 2.651 billion yuan, down 48.6% year-on-year; XCMG Machinery's net profit was 851 million yuan, down 46.49% year-on-year; LiuGong's net profit was 261 million yuan, down 15.77% year-on-year.

　　This Acquisition Was Once Hailed as a "Perfect Match"

　　Dongyue Heavy Industry was formerly Tai'an Dongyue Heavy Industry Co., Ltd. In November 2007, Manitowoc Asia entered Dongyue Heavy Industry, forming a 50-50 ownership with Taishan Investment. Dongyue Heavy Industry specializes in cranes, which was a relatively weak area for Shantui in the construction machinery field. Meanwhile, Manitowoc Asia's parent, the U.S.-based Manitowoc Company, is a world leader in the crane industry and had previously filed a "337" anti-dumping investigation against Sany Heavy Industry's crawler cranes in the United States.

　　In addition to cooperation with the world giant, the U.S. Manitowoc Company would provide the target company, through its affiliate Grove U.S. LLC, with original drawings for 34 types of truck cranes and loader cranes. For 12 of these products, it would also provide corresponding technical documents, work instructions, and technical standards. It would also act as the exclusive distributor for imported all-terrain cranes and rough-terrain cranes, and license Dongyue Heavy Industry to use the names "SHANTUI", "Shantui", "MANITOWOC", and "Manitowoc" free of charge in its company name and internet domain name, and to use the brands "SHANTUI", "Shantui", "GROVE", and "Grove" free of charge on the crane products it manufactures.

　　At the time, this cooperation was praised by institutions as a "perfect match" and "well-matched". As the domestic leader in the bulldozer industry, Shantui has a relatively single product line, and its performance has declined rapidly in the past two years amid the downturn in the construction machinery industry. The current industry pattern is that leading companies are horizontally expanding their product lines and transforming into comprehensive construction machinery suppliers. The company's move conforms to the historical trend of industry development. Through this joint venture, the company can use Grove's existing drawings and technology to quickly improve its product line and enter the crane market. In terms of product channels, considering that the customer bases for construction machinery products largely overlap, Shantui's channels built over the years will provide great convenience for the company to open up the market.