Weir Group is expected to come back with an improved offer for rival Metso after the Finnish firm rejected a proposal for an all-share merger that would have created a business worth more than £8.5 billion.
Analysts said Metso’s decision to spurn the Glasgow-based group’s advances did not come as a surprise, given the initial opposition voiced by the head of Finland’s state investment fund Solidium, which owns 11 per cent of the company.
Weir made an unsolicited approach to Metso last month to propose an all-share merger of the two companies, in a deal that would have seen shareholders in the Helsinki-headquartered company owning about 37 per cent of the enlarged group.
However, the maker of rock-
crushing machinery said its board, chaired by Mikael Lilius, had reached the unanimous conclusion that a tie-up “is not in the best interest of Metso shareholders”.
It told investors: “The Metso board remains extremely positive and confident in Metso’s standalone growth and value creation prospects by pursuing its current strategy. As a consequence, the board has rejected Weir’s proposal and sees no reason to commence discussions regarding a potential combination.”
In response, the Scots firm said it continued to believe there was a “compelling strategic rationale” to bring the two companies together, arguing that a merger could deliver “very significant value creation” and cost savings.
Weir, led by chief executive Keith Cochrane, added: “The board of Weir believes that it has made an attractive merger proposal and there is no certainty that it will revise the terms of its proposal.”
However, Investec analyst Thomas Rands said he expected the group to return with a sweetened offer, potentially with an element of cash. Under its original proposal, Metso investors would have received 0.84 Weir shares for every share they held in the Finnish group.
Rands said: “It’s the first rule of negotiation not to accept the first offer, so it’s no surprise that Metso turned it down. I expect there will be a cash option element for those who, for whatever reason, don’t want to take Weir shares.
“The key pension funds in Finland will probably control this, so if Weir can get those over the line the rest will hopefully follow. If it could have been done on the original terms it would have been a really good deal for Weir, so it depends on how much more they have to pay on top of the existing offer.”
Some analysts have said that a failure to merge with Metso could make Weir – frequently the subject of takeover speculation – a target for the likes of General Electric or Honeywell that are keen to access its lucrative position in the US shale gas market. However, Rands said: “If anyone had wanted to bid for Weir, they could have done so before, and I don’t see this as a catalyst to bring out an offer now.”
Weir employs 15,000 people in more than 70 countries, including about 600 in Scotland. It recently published a report that warned Scottish independence would create “costs and uncertainties” that outweigh the benefits for businesses.
Cochrane, who revealed he would be voting No in September’s referendum, said a Yes vote “carries substantial risks to our economy and, therefore, to the quality of life of millions of people”.