Weir seeks fresh deals after Metso offer is rejected
The chief executive of Weir Group said it will pursue other acquisition opportunities after the Scottish engineering company’s improved multibillion-dollar bid for Finland’s Metso was again rejected.
Keith Cochrane told the Financial Times on Wednesday it would look at developing its international oil and gas footprint, as well as potential purchases in the mining and power sectors, after giving its attempt at a merger with Metso its “best shot”.
“We felt we put forward a compelling offer to Metso. That was our best shot and now we move on,” Mr Cochrane said. He said the group would pursue a pipeline of large and small opportunities across all three of its divisions.
But Weir may also need to fend off potential acquirers of its own business, according to market observers, who say it may be an attractive target for foreign bids, particularly US shale companies looking to do a reverse takeover to change their tax domicile.
One analyst, who did not want to be named, said the rejection could result in Weir becoming a takeover target. “Some in the market will now naturally ask whether Weir itself becomes vulnerable to a bid, as often happens after a transaction of its own fails,” he said.
The Glasgow-based FTSE 100 company announced on Wednesday it had made a second all-share offer last week to Metso, a leader in rock crushing equipment, valuing the latter at €4.6bn, representing a 13 per cent improvement on its initial offer and a 34 per cent premium to Metso’s share price on March 26, the day before that had been submitted.
It also added a special dividend payable to all shareholders in the combined group equivalent to €2.13 per share, assuming full acceptance of the offer.
But the Metso board rejected the offer, calling it “opportunistic” and one that “significantly undervalues” the company’s prospects.
Metso said Weir was attempting to capitalise on the trough in the mining market, where Metso is a market leader in “comminution” equipment, which crushes rocks.
“We don’t believe the market has valued Metso today in the right manner,” said Mikael Lilius, chairman of the board. “We are at a low in the mining cycle and we believe there is room for upside in our favour.”
Weir also faced continued opposition from Solidium, Finland’s state investment fund and Metso’s second-largest shareholder.
The fund, which owns an 11 per cent stake in Metso, echoed Metso’s views that the company has good opportunities to develop as an independent company. “We’ve done our analysis and we share the view there is significant undervaluing in the proposal,” said Hanna Masala, Solidium’s investment director.
Metso said it would unveil its own strategy for growth in the summer, after spending last year focusing on splitting off from its paper and pulp business.
Mr Cochrane said Weir would consider both large and small acquisitions, but dismissed market speculation that it could make a play for fellow FTSE 100 engineer IMI or Sulzer. “I have no interest whatsoever of creating a fourth leg beyond oil and gas, mining and power,” he said.
Some analysts said Weir was right to walk away. “Weir need to maintain the pretence that they are financially disciplined and if it leaked that they had raised the offer several times without engaging, this position would have been untenable,” said Thomas Rands, analyst at Investec in a note.
If the merger had gone ahead, the combined company would have had a market capitalisation of about £8.5bn.
Weir’s share price closed the day down 0.77 per cent at £25.84.