Metso Oyj (MEO1V), a Finnish manufacturer of rock crushers, rejected a merger proposal from British pressure-pump maker The Weir Group Plc (WEIR), saying that a deal would dampen its growth prospects.
The proposed transaction is not in the best interest of its shareholders, Helsinki-based Metso said in a statement. Weir said in a separate statement that it still sees a “compelling strategic rationale for bringing the two companies together” and may revise its offer. Metso dropped as much as 7.2 percent in Helsinki trading.
A combination with Metso would allow Weir to add rock crushers for the mining industry and valves for liquefied natural gas to target a wider range of customers. Weir Chief Executive Officer Keith Cochrane said in February he’s looking to buy more mining, oil, gas and valves companies following the acquisitions of drilling control company Mathena Inc. and mining supplier R Wales.
Analysts including Canaccord Genuity’s Harry Philips had said the two companies are a good fit as a deal would allow Weir to sell Metso’s offerings to clients wanting additional services and via its global service network. A merger of Weir and Metso would generate synergies of at least 300 million euros ($415 million), according to Canaccord.
Weir’s proposal, which the companies made public Apr. 1, included a premium of as much as 10 percent, people familiar with the talks said at the time. Weir said today that its proposal would give Metso shareholders a 37 percent stake of the combined entity.
“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,” the company said today.
Metso dropped as much as 2.06 euros to 26.67 euros in Helsinki trading while Weir rose as much as 0.6 percent in London.
Weir in February forecast a return to underlying growth this year, citing better prospects in its energy business. Momentum increased in oil and gas last year and profitability in that business improved in the second half, the Glasgow, Scotland-based company said in a statement at the time.
Weir’s oil and gas business was helped by the acquisitions of Mathena and R Wales last year, which contributed 70 million pounds ($118 million) in revenue. Weir predicted sales and profit growth this year on a constant currency basis with margins broadly in line with 2013.
Metso, which earlier this year spun off its paper-machines unit into a company called Valmet Oyj (VALMT), is focusing on costs as miners worldwide put investments on hold. Metso began a 100 million-euro savings program Oct. 24 after cutting its full-year outlook a week earlier. The company wants to achieve most of the savings this year, with as much as half coming from improved sourcing of goods and services.
Metso Chief Executive Officer Matti Kaehkoenen in January predicted falling prices as mining customers spend less in a “transition year.” Metso’s mining, construction and automation business had an operating profit margin of more than 11 percent of net sales in 2012, compared with a 4.9 percent margin for the spun off pulp, paper and power assets.
The break-up of Metso and Valmet was implemented almost nine years after Cevian Capital’s co-founder Christer Gardell and U.S. investor Carl Icahn first called for it, citing lack of synergies in the mineral and paper-equipment divisions.
Metso has said that it’s prepared to spend “several hundred million euros” on acquisitions as it waits for spending by the world’s largest miners, such as Rio Tinto Plc (RIO), to recover. Metso plans to expand its services business and automation unit revenues, especially in advanced oil and gas valves, according to Kaehkoenen.
To contact the reporter on this story: Alex Webb in Munich at email@example.com
To contact the editors responsible for this story: Simon Thiel at firstname.lastname@example.org Robert Valpuesta