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Terex Corp CEO Not Sold On Sale Prices For Companies

By Bob Tita Of DOW JONES NEWSWIRES Terex Corp. (TEX) Chairman and Chief Executive Ron DeFeo considers most machinery companies for sale as overpriced, but he sees the climate for value-conscious buyers improving. DeFeo, whose construction-equipment company was built through some 50 acquisitions beginning in the mid-1990s, said a wave of optimism has washed over the industrial sector, running up purchase prices to reflect companies' optimum levels of profitability. "The valuations are there for the future, but the performance isn't quite there yet," said DeFeo, in an interview with Dow Jones Newswires at the ConExpo construction equipment trade show in Las Vegas. "We're our own example of that. My stock price is trading on my future potential, more than my existing performance. That makes acquisitions challenging." Terex lost $1.23 per share in 2010. But its stock price has more than doubled since July, closing Friday at $37.40 a share. The stock is trading at a lofty 50 times the company's projected 2011 profit. DeFeo said he's opted to wait until companies' actual performance becomes more aligned with acquisition prices before he becomes a buyer. He said he expects the gap to narrow in 2011 as the economic recovery gathers momentum. "The performance will come up to the price level, which will open up the window again for the strategic" buyers, he said. The Connecticut company's business lines consist of specialized equipment, such as cranes, road pavers, rock crushers and compact construction machinery, rather than mainline earth-moving categories, like bulldozers and excavators. DeFeo, 59, who has led Terex for 16 years, has a reputation for finding underpriced or overlooked companies to buy during cyclical slumps. Terex bought aerial-work-platform manufacturer Genie Holdings for $75 million in 2002. By 2007, the platforms used for washing windows, painting, installing light bulbs and other above-ground jobs would account for one-third of Terex's annual revenue and 56% of its operating income. Terex sold its mining machinery business to Bucyrus International Inc. (BUCY) in 2010 for $1.3 billion with the intent of using the sale proceeds to acquire other equipment companies. DeFeo assumed the 2009 economic recession would create a slew of purchase opportunities as lenders forced the sale of companies that had fallen on hard times. But that wasn't the case. Banks chose instead to restructure underperforming loans to avoid high volumes of loan write-offs. Terex used the Bucyrus money to pay down debt. "This is probably the most difficult period I've been in to find financially attractive acquisitions to make," DeFeo said. When deals come around to DeFeo's liking, he said the company should have plenty of buying-power. By reducing its debt in recent months, the company will have the ability to borrow again for acquisitions. On top of that, Terex will receive an additional $200 million from the mining business sale when Caterpillar Inc. (CAT) completes its purchase of Bucyrus later this year. Terex is Bucyrus' largest shareholder after taking a large equity stake in the company as part of the compensation for the mining line. "I actually got two bites at the apple," DeFeo said about the benefits from the Terex mining sale. -By Bob Tita, Dow Jones Newswires; 312-750-4129;

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