Weir stake may be up for grabs, activists circling? - MergerMArketIndustrial engineer Weir Group [LON:WEIR] has looked like a natural activist target for some time.A sizeable share price fall last week, coupled with an upcoming lock-up expiry (12 January 2019) on a chunky stake held by owners of a business acquired by Weir earlier this year, mean it’s a situation worth watching.Shareholders of Esco, bought by Weir for USD 1.3bn in July, are locked up for 180 days from a 31 July completion date. They own around 16.8m shares in the business, worth about GBP 280m at market prices. On announcement of the acquisition of Esco in April, Weir said 50%-plus of that stake would be subject to the lock-up, indicating that around 6.5% of the business could be up for grabs.As well as a potential share overhang due to the expiring lock-up, Weir’s share price is under pressure for other reasons.Industrial markets are weakening after a strong run through 2017, according to JP Morgan’s Global Manufacturing PMI data. Profit warnings among some of Europe’s large industrial companies, including Osram Licht [ETR:OSR] and Continental [ETR:CON], as well as oilfield service giants Schlumberger [NYSE:SLB] and Halliburton [NYSE:HAL], provide evidence that demand may be starting to wane.Weir itself issued an unscheduled trading update on 6 September, soon after a strong set of half-year numbers, saying equipment orders softened in late August. Its shares fell 6% on the news. Weir's market cap stands at GBP 4.7bn.A sell-off at Weir, and the potential to pick up shares at a discount if former Esco investors sell, could whet the appetite of activists.Weir trades at a discount to European peers Epiroc [STO:EPIA] and Metso [HEL:METSO] on trailing-12-month EV/EBIT and EV/EBITDA multiples, after including pro-forma revenues and profitability from Esco.Metso, which has lower margins than Weir, trades at a slight EV/sales discount. The range of valuations on these two peers indicates an equity value for Weir of between GBP 13 and GBP 34 per share. Averages across a broader peer group, including Sandvik [STO:SAND], Komatsu [TYO:6301] and Caterpillar [NYSE:CAT], indicate an equity value of between GBP 15.41 and GBP 19.44 per share.Weir’s share price at yesterday’s close was GBP 15.71.Key risks at Weir include debt taken on to fund the acquisition of Esco: the engineer reported net debt/EBITDA on 30 June, excluding the rights issue to fund the deal, at 2.1x versus covenants at 3.5x.Beyond valuation arguments, there are also elements of Weir’s corporate structure which could appeal to activists.Weir’s management has already acted on perhaps its most obvious strategic move by kicking off a sale process for its Flow Control business.A sale of the unit could bring in between GBP 500m and GBP 700m, the Flash previously calculated. EV/sales multiples on peers imply the unit should attract a valuation in this ball park. But it’s worth noting the unit does not generate a material amount of EBITDA and so buyers would need to be confident the business could be turned around.Weir operates across two further business lines: Minerals and Oil & Gas. A sale or spin-off of the latter unit might help Weir take advantage of investor interest in the Minerals engineering sector.Atlas Copco’s [STO:ATCOA] spin-off of Epiroc, which priced beyond the top end of comparative valuations, highlights investor appetite for high quality pure-play operators in this industry.Activist interest in the sector from Cevian, which is invested in Metso, another key Minerals peer, means there are plenty of reasons to follow developments at Weir.