WEIR Group may have to shell out up to £4.3 billion to secure a merger with Metso after the engineering firm’s advances were rebuffed by its Finnish rival last week.
Although the Glasgow-based group said there was no guarantee it would revise the terms of the initial proposal, which valued its target at about ¤3.9bn (£3.2bn), speculation is mounting that it will come back with a sweetened offer.
Weir, led by chief executive Keith Cochrane, made an unsolicited approach to Metso last month to propose an all-share merger of the two companies to create a business worth about £8.7bn. The deal would have seen the Helsinki-based firm’s shareholders owning about 37 per cent of the enlarged group.
Metso has 16,000 staff, while Weir employs 15,000 in more than 70 countries, including about 600 in Scotland.
Under the original proposal, Metso investors would have received 0.84 Weir shares for each share they held in the Finnish group. Weir shares closed at 2,563p on Thursday, which means its offer valued Metso at about ¤26.14 a share.
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”.
Using the exchange rate at the time and the closing price for both companies on 27 March, when the deal was first proposed, Weir’s offer implied a 14 per cent premium, but Metso shares closed at ¤29.14 last week, valuing the company at ¤4.4bn.
Analysts now believe that Weir, which has a market value of about £5.5bn, may be forced to offer up to ¤35 a share to win over Metso’s board, which is also understood to be seeking an element of cash to sweeten the deal.
An improved bid could see Metso investors offered a larger slice of the combined entity, but Weir is not believed to be willing to go much higher than 40 per cent.
However, insiders point out that Weir has walked away in the past when deals became too pricey. Two years ago, it dropped out of the race to buy Australian mining equipment maker Ludowici after being repeatedly outbid by Danish rival FLSmidth.
Weir faces a challenge in winning over Finland’s state investment fund Solidium, which owns 11 per cent of its target. Solidium declined to comment but is said to be in favour of Metso continuing as a standalone company.
One source also said that Nordic investors tend to get “emotionally attached” to their domestic companies, which can lead to them holding out for an unrealistic value.
Metso is one of the key players in the market for rock-crushing equipment and is seen as a good fit for Weir, which is keen to expand its mining business.
Merging with Metso would help position Weir as a “one-stop shop” for equipment targeting the downstream mining sector.
Metso generated sales of ¤3.86bn last year, down 10 per cent on 2012, which means its Scots suitor could be looking to squeeze out savings of between ¤200m and ¤350m from a combination of the two.