Chinese equipment manufacturer Weichai Power will invest EUR738 million (USD925 million) to acquire a 25% stake in the KION Group, and a 70% share in its hydraulics business.

The partnership, which will see Weichai and KION co-operate closely in the fields of materials handling and hydraulic drive technology, is the largest Chinese direct investment in Germany to date.

Weichai Power chairman and CEO Tan Xuguang calls the partnership "an important step in [the company's] five-year strategy to globalise and expand its business activities into new markets and products".

Under the agreement signed last Friday, Weichai Power will invest EUR467 million (USD585 million) to acquire a 25% stake in KION via a capital increase, and EUR271 million (USD340 million) for a 70% majority stake in KION's hydraulics business. KION will use the proceeds to boost its capital structure.

KKR and Goldman Sach Capital Partners will retain their existing investment in KION, and will not receive any proceeds from the transaction. In the event of a future IPO of KION, Weichai Power has the option to increase its stake in KION to 30%. It also has the right to further increase its stake in KION's hydraulics business.

The hydraulics business will be operated and managed as an independent company named Linde Hydraulics, with KION retaining a strategic stake in the company. Linde's hydraulics products will continue to be branded under the Linde Hydraulics trademark.

With complementary products and technologies from Weichai Power, Linde Hydraulics expects to be in a position to "gain scale and [exploit] untapped market potential, particularly in the growing Asian region".

Linde Hydraulics plans to relocate the existing hydraulics activities in Nilkheim, Aschaffenburg to a new hydraulics plant nearby and increase capacity at its other hydraulics production sites.

"KION has a long and successful history of operating in its markets, and we are strongly committed to its highly qualified and motivated employees and management," says Tan. "We will ensure stability of employment and the production sites, as well as continuity in the management of Linde Hydraulics."

KION CEO Gordon Riske adds that for KION, the partnership is an important catalyst for strong future growth in Asia and China, in particular. "This applies to both the industrial trucks and the hydraulics businesses, which will significantly benefit from Weichai Power's expertise in the field of engines and drive technology."

Linde Hydraulics employees need not fear for their jobs as Weichai Power has emphasised that it will honour all existing collective labour agreements, bargaining agreements and co-determination.

In addition to the planned new production site in Aschaffenburg, Linde Hydraulics intends to expand its activities in China to better meet the growing demand from Chinese and Asian customers.

The KION Group, comprising the six brands Linde, STILL, Fenwick, OM STILL, Baoli and Voltas, is Europe's market leader in industrial trucks, and the leading international supplier in China.
In 2011, the KION Group employed about 22,000 people and generated revenue of around EUR4.4 billion (USD5.5 billion).

Weichai Power is a part of parent company Shandong Heavy Industry Group, a China-based leading industrial manufacturer of commercial vehicles, construction machinery, power systems, auto parts and yachts. In 2011, Weichai Power generated revenue of RMB60 billion (USD9.5 billion) and a net profit of RMB5.6 billion (USD900 million). At the end of 2011, Weichai Power employed 42,000 employees globally.

The transaction is expected to finalise in the fourth quarter.