Chain of Thought

Toyota Starts Cascade of Talk about its Newest Attachment

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Toyota Industries Corp.'s acquisition of forklift attachments maker Cascade Corp. for $759 million is buying attention the principals didn't bargain for.

In the last couple years, some business executives might have considered boredom a good thing, especially after the economic roller coaster ride they had taken. Nowhere was the decline of the first fiscal hill of that ride as pronounced as in the lift truck world. Now that they’re finally enjoying coasting up a mild business incline after surviving the fall from their own fiscal cliff between 2006 and 2009, boredom is no longer a luxury these executives can afford. It’s time to be bold.

As we’ve reported recently, there have been some pretty bold ventures announced in material handling and logistics. Amazon’s purchase of Kiva for $775 million was a big one. More recently, the WMS experts at RedPrairie announced their acquisition of ERP experts JDA for $1.9 billion.  And just last month, an announcement came out of the lift truck industry that Toyota Industries Corp. (TICO) began a tender offer to acquire attachments manufacturer Cascade Corp. for $759 million.

All of these deals were eyebrow-raisers in their own ways, either for the amount of the deal or for their attempts to corner a big chunk of their markets—or both. That was the case with the TICO-Cascade deal, certainly, but the raised eyebrows at the outset were those of many Cascade shareholders, who thought they should have gotten more, especially considering the company’s recent strong performance, and its positioning for growth. The proposed deal would provide a premium of 18% based on Cascade’s closing price on the last day of trading before the announcement. Then there was the competitive value of the corporate combination itself.

A class action suit states that the transaction “fails to adequately compensate Cascade’s shareholders for the significant synergies created by the merger” and that it would allow Toyota to broaden its business. They used Toyota President and Representative Director Tetsuro Toyoda’s own words about the deal as evidence of that value:

“Cascade Corporation has a strong reputation for providing customers with the latest technology in materials handling attachments for lift trucks and is widely considered to be the innovative leader with high-quality, customizable products,” he was quoted as saying.

But forget about the shareholders for a minute, what about Toyota’s competitors—many of whom are Cascade customers? Will they continue to do business with a company owned by Toyota? I asked Joseph Pointer, Cascade’s chief financial officer if he was concerned about those ramifications.

“Toyota told us there was no intention on their part to change anything,” he said. “From Toyota’s perspective we’ll operate as Cascade with the Cascade brand and it will be business as usual.” However, like Mr. Toyoda, he did acknowledge the potential value Toyota would gain with this acquisition: “Very few lift truck manufacturers manufacture their own attachments, and they know in Japan that maybe there’s some leverage there.” 

To protect themselves from any sense of unfair business dealings, Pointer said the principals are making sure to get legal and compliance issues in line.

“TICO has made it clear we won’t be any part of the Toyota material handling group in the US,” he added.  However, acknowledging the perception-is-reality law, he believes that perception was very much on everyone’s minds when this deal was cut. “They stand to lose a lot of business if they can’t convince our customers that we’re treating everybody fairly,” he added. “That’s the message we’re sending.”

And just as Mr. Toyoda is confident of the value Cascade brings to Toyota, Pointer is just as confident of the value Cascade still represents to Toyota’s competitors.

“Lift truck manufacturers are trying to make the end user happy and if their customer feels they need a Cascade product, those manufacturers won’t jeopardize the sale of a lift truck just out of spite for Cascade.”

I just thought of a few more executives who might be hearing opportunity’s knock in the ever-more-exciting material handling world: Cascade’s competitors—especially Long Reach and Brudi, both of which are well-respected attachment brands and who long ago arranged their own form of synergy when the former acquired the latter. I wouldn’t be surprised if their sales people are starting to knock on the doors of non-Toyota lift truck dealers.  I’ll conclude with something Jim Shephard, president of Shephard’s Industrial Training Systems, told me when he heard about the Toyota/Cascade acquisition:

“If a [non-Toyota] dealer thought there was a hotline between Cascade and Toyota’s lift truck factory when there was a big deal going down, competitive dealers might stop calling Cascade in. However, if Cascade can assure dealers that they will work as a subsidiary of Toyota and that Toyota dealers won’t get a better deal out of Cascade and that they’ll guarantee confidentiality in quotes and pricing, it could be OK.”

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