Adds analyst in paragraphs 6-7, graphics, updates share price

By Anne Kauranen and Soren Jeppesen

HELSINKI, April 29 (Reuters) - Finnish lift maker Kone KNEBV.HE has agreed to buy German rival TK Elevator (TKE) in a deal worth 29.4 billion euros ($34.4 billion) that would create ​the world's largest lift maker.

As the industry grapples with slowing demand in China and seeks growth elsewhere, the deal would propel Kone past U.S. rival Otis OTIS.N, create a European champion and boost its foothold in the Americas, where TKE is stronger.

"We need more growing companies in the global top tier," Finnish Prime Minister Petteri Orpo said on X.

The deal with TKE's private equity owners Advent International and Cinven, along with other investors, marks one of Europe's biggest takeovers in years and the largest sell-side private equity deal in Europe since records began in 1980, LSEG data showed.

The combined company would have more than 100,000 employees and annual sales of more than 20 billion euros.

STRENGTH IN MAINTENANCE, SCALE IN U.S.

Kone's shares were down 5% to their lowest since August, while Germany's Thyssenkrupp TKAG.DE, which owns a 16.2% stake in TKE, rose 8.7%.

The deal faces both execution and antitrust risks, brokers RBC said in a note to clients.

"In a nutshell, we worry that the Kone equity case – industry-leading growth, strong sales execution and healthy margin expansion – will now, for the next two years or more, be subsumed by the TKE deal," RBC wrote.

The merger would give Kone scale in maintenance and modernisation - the most profitable parts of its elevator business, in addition to boosting its U.S. footprint. Kone is strong in Europe and Asia, while North America accounted for around a third of TKE's sales.

Elevator makers have been hit by a prolonged slump in the once booming Chinese property market in recent years. The merger would yield cost savings estimated at 700 million euros annually, Kone said.

"In terms of synergies as a percentage of revenue of the acquired company, this is a pretty impressive deal," Danske Bank equity analyst Panu Laitinmaki said.

ANTITRUST HURDLES

In terms of market value, the combined company would overtake Otis valued at $29.7 billion and Switzerland's Schindler SCHP.S valued at $36.2 billion.

Japan's Mitsubishi Electric 6503.T and Hitachi 6501.T are bigger but elevators are only part of their businesses.

Analysts expect antitrust scrutiny given the market is already highly concentrated, and the company said it could take 12 to 18 months to close the deal.

The European Commission had not yet been notified, a spokesperson said.

Schindler has already said it would challenge the tie-up.

Kone is confident it will secure approval, adding that the Finnish group would have to pay a break-up fee should its owners reject the deal, CEO Delorme said on a call.

CASH AND SHARES DEAL

Kone will pay 5 billion euros in cash upon the deal closing and issue a further 270 million new shares worth around 15.2 billion euros, corresponding to 33.8% of all issued shares and 18.3% of total votes.

In addition, Kone will take on TK Elevator's interest-bearing net debt, amounting to about 9.2 billion euros, which it plans to refinance.

The new shares will be held by a company called Vertical Topco, owned by Advent and Cinven as well as Thyssenkrupp and other investors.

Kone's chairman, Finnish billionaire Antti Herlin, will acquire some 1 billion euros of the new stock once the transaction is completed, ensuring he will continue to control more than 50% of the voting rights in the merged company.

Kone shareholders with approximately 74.3% of the total votes have agreed to support the transaction.

TRANSACTION LONG IN THE MAKING

Kone has had TKE in its sights for years, making a non-binding offer of 17 billion euros for the company six years ago before dropping it due to antitrust risks.

The deal also failed because TKE's then-owner, Thyssenkrupp, demanded a 2.5 billion euro advance payment despite an expected year-long delay before Kone would have gained control of the firm, Kone's former CEO recounted later.

Thyssenkrupp sold its lift business to ​Advent International and ⁠Cinven, TKE's current owners, for $18.7 billion in 2020.

Reuters reported last year that TKE's owners were also weighing a potential U.S. IPO as an alternative to a sale.

($1 = 0.8546 euros)