Weir shares jump 42% in two days on takeover bid talks

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The Independent Online
SHARES IN Weir group, the Scottish pump manufacturer, rose 61.5p to 294.5p yesterday, making a two-day leap of 42 per cent, after the Glasgow- based engineer became the latest engineering company to reveal it has received an unsolicited approach that might lead to a bid.

Last week the shares were trading on a multiple of under 10-times earnings and a discount of 30 per cent to the engineering sector as a whole.

The approach comes just 24 hours after the chairman, Lord Weir, retired and the company appointed Duncan Whyte from Scottish Power as chief executive from 1 June.

The most likely bidders include ITT, the world's largest pump manufacturer, which recently sold its automotive businesses for $3.6bn. ITT is likely to be cash positive even after mounting a $1.1bn stock repurchase. Other possible bidders include IDEX, Flowserve or Textron, which last year bought David Brown's pump business in Huddersfield. ITT in particular would make a good fit, analysts said.

Market sources expect a bid of around 300p, which would value Weir at pounds 600m, but David Larkan, engineering analyst at Albert E Sharp, expects that ITT would have to offer around 350p to mount a realistic knock-out blow.

Sir Ron Garrick, the current chief executive who takes over from Lord Weir as chairman, is expected to put up doughty resistance after spending nearly 20 years in building up the business, which is now one of the few remaining independent Scottish engineering groups and has over 8,000 employees.

Weir itself is a cash-rich company with a strong long-term order book. It has spent pounds 200m over the past four years making small but frequent acquisitions.

Worldwide demand for new equipment is currently slack especially from the oil, mining and marine sectors, but demand for spares and service remains strong and the long-term future is bright.

Analysts expect Weir to make slow but steady progress with profits advancing from pounds 59.3m in 1997 to around pounds 63m in 1998 and pounds 66m plus and earnings of 23.5p a share in 1999.