The first step in the deal will be for Demag Cranes AG to acquire a minority stake in the Weihua Group’s crane business. A letter of intent signed by Demag chairman Aloysius Rauen and Weihua chairman and president Han Xianbao gives Demag the option to take a majority interest in the medium term, and take a role in the management of the company. The deal commits the companies to exclusive negotiations. Han Xianbao and his family have a 100% holding in Weihua Group. Under the terms of the deal, he would continue to hold a leading position in the company.

The model of Western crane design experts forming agreements with high capacity Chinese manufacturers is well established: Huisman, Terex, Palfinger, Manitowoc, and Konecranes, among others, all have broadly similar deals. Weihua would fit that model. The Henan-based company, founded in 1988, is a sizable manufacturing business, building industrial cranes, harbour cranes, and crane components. It employs more than 5,000 people and generated revenues of CNY2.5bn (€280m) in 2009.

German-based Demag Cranes AG is a leading builder of port and process cranes, and related equipment. It was one of the companies formed out of the break up of Mannesman in 2000. It would bring a strong record of building world-class cranes to the deal. Han Xianbao said, “The planned cooperation with Demag Cranes is an excellent opportunity for Weihua to use and develop new products together and to tap into international markets, where Demag Cranes is well positioned with its worldwide renowned Demag and Gottwald brand names, thus achieving a win-win situation.”

Demag received an initial takeover approach from Konecranes at the end of last year. The German firm turned down the approach. Shortly after, stock market rumours suggested that Terex had employed Goldman Sachs to examine a potential bid. The current deal would, possibly, make any future bid for the business more expensive and harder to put together.