Weir may target rival IMI after Metso rejects £3.7bn takeover

 

Mark Leftly
Wednesday 28 May 2014 23:44
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Weir was forced to walk away from its dreams of building an engineering empire on Wednesday after its Finnish rival Metso rejected a second, £3.7bn takeover attempt.

But City analysts immediately speculated that the engineer’s chief executive, Keith Cochrane, might now turn his attentions to the pumps and valves engineer IMI, Weir’s FTSE 100 peer.

The Glasgow-based engineer latest all-share bid, made last week, was a 13 per cent increase on the previous offer submitted in March. It valued Metso’s shares at €30.49 (2,477p) each, a 34 per cent premium on their value on the day before Weir submitted its initial proposal.

In a statement, Weir said it had “made a compelling proposal but remains financially disciplined and therefore does not intend to pursue this opportunity further at this time”.

The engineer was keen to expand in the heavy mining equipment sector, which Metso specialises in. But opponents to the deal included Finland’s state investment fund, Solidium, which is Metso’s second-biggest shareholder with an 11 per cent stake.

Sources close to Weir noted that Metso’s latest rejection had one important difference from the one that followed the first offer. Metso said then the board was “unanimous” in concluding that the offer was too low; this time the word was absent, suggesting that some – but not a majority – of directors were willing to talk.

A source said that the “only way this would work now” would be if Metso’s shareholders went directly to management and ordered them to open discussions.

Weir would not go hostile, but executives are convinced that savings of £150m a year would benefit both companies’ investors if the two were put together.

Metso’s chairman, Mikael Lilius, said there was a “real opportunity to create significant value for all its shareholders by pursuing its own course”.

If shareholders do not press Metso’s management for answers, Weir – a 143-year-old engineer that carries out a wide range of work from maintaining wind farms to building oil rig pumps – would look to annex rivals elsewhere.

“Weir does not intend to sweeten the deal but we believe that the landscape for pumps and valves engineers, including names such as IMI and Sulzer, remains ripe for consolidation,” analysts at Liberum said in a note.

Shares in IMI edged up 15p to 1,561p yesterday.

This is the second failed effort by a big British manufacturer to make a major Finnish purchase in six months.

In January, Rolls-Royce confirmed reports that it had wanted to buy Wartsila. The board only briefly considered the approach and Wartsila instead chose to focus on restructuring the group, including plans to slash 1,000 jobs.

Weir’s investors were disappointed at yesterday’s news, and its shares dropped 20p to 2,584p. Shares in Metso fell 2 per cent. Bank of America Merrill Lynch advised Weir on the takeover bid.

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