* Shares up 22 percent at 44.33 euros
* Terex to bid 41.75 euros per Demag Cranes share
* Terex says has had unsuccessful talks with Demag
* Shareholder says merger would make strategic sense
(Adds comment from Demag shareholder, further details)
By Arno Schuetze and Edward Taylor
FRANKFURT, May 2 (Reuters) - U.S. crane maker Terex launched a hostile takeover of Demag Cranes on Monday, pushing shares in its German rival up 23 percent and past its offer price as investors anticipated a bidding war.
Terex announced its proposed offer directly to shareholders after Demag management turned its back on talks. It said it would offer 41.75 euros per Demag share in cash -- a 15 percent premium to Demag's closing price on Friday -- valuing its bid at 884 million euros ($1.31 billion).
Both Terex and Finland-based crane maker Konecranes previously expressed an interest in Demag. The latter ruled out a hostile approach earlier this year after being rebuffed by Demag but analysts said Temex's move could prompt the Finnish firm to think again.
"From our point of view it is likely that Terex will have to increase the offer price in order to be successful. Furthermore Konecranes could come up with a counterbid," DZ Bank analyst Karsten Oblinger said.
Konecranes declined to comment on Monday.
A person with direct knowledge of the talks, who declined to be named because they were confidential, said that contact between Terex and Demag broke off as early as September 2010.
Demag Cranes declined to comment but said it would issue a statement later in the day.
A merger would create the market leader in harbour cranes with combined sales of about $5.8 billion.
Achim Henke, an analyst at WestLB, said the bid from Terex would not win over shareholders.
"I do believe that Terex will have to put 50 euros on the table to be successful with its bid," Henke said adding that Demag's operating business would be worth at least 45 euros without a takeover premium.
Terex said the minimum acceptance threshold would be 51 percent.
At 1220 GMT shares in Demag were up 22.73 percent at 44.54 euros.
SHAREHOLDERS APPROACH
Terex Chairman and Chief Executive Officer Ronald DeFeo has repeatedly said that Terex is interested in growing through acquisition but has had a hard time finding attractively-priced targets.
"There were talks with Demag management, which failed to reach any agreement, prompting us to approach shareholders directly," a spokesman for Terex in Germany said on Monday.
At Demag's shareholder meeting in March, shareholders -- at least 20 percent of which are hedge funds -- had pushed the management to sit down and talk to possible suitors.
But Chief Executive Aloysius Rauen had said that while the board had looked into the possibility of merger it had found such a move made no sense.
UK hedge fund Centaurus Capital, the third-biggest Demag shareholder which in February urged the crane maker to merge with Konecranes, declined to comment.
The biggest shareholder, Cevian, which holds just over 10 percent in Demag Cranes, could not be reached for comment.
Demag shareholder LBBW Asset Management -- among Demag's 50 biggest investors -- urged the management to sit down and negotiate with Terex.
"A merger would make strategic sense," said LBBW portfolio manager Helmut Bartsch.
"However, it would be a defensive move as the two companies should rather try to expand in the fast growing Asian countries than in saturated U.S. and European markets."
A possible counterbid from Konecranes would face tougher competition scrutiny than a U.S.-European combination, he added.
Terex said on Monday the offer would be funded from existing cash and also from committed debt financing.
As per March 31, Terex's liquidity including a revolving credit facility totalled $1.2 billion.
"This transaction is predicated upon growth and not cost reduction," Terex CEO DeFeo said. "The company is professionally managed, with highly motivated staff, and Terex will draw on this for both Demag's ongoing success - and the future of Terex as a whole."
Goldman Sachs and Commerzbank are advising Terex.
Demag Cranes posted a net profit of 28 million euros in its fiscal 2009/10 on sales of 930 million euros.
Terex -- specialising in aerial work platforms, construction, cranes, and materials processing -- last year posted sales of $4.4 billion.
(Additional reporting by Alexander Huebner and Christoph Steitz) (Editing by Sophie Walker)