May 28 (Bloomberg) -- Weir Group Plc said it has abandoned its pursuit of Metso Oyj after management of the Finnish company snubbed an all-share offer valuing the maker of mining and construction equipment at 4.6 billion euros ($6.3 billion).
Weir sweetened its bid by 13 percent, lifting the exchange ratio of Weir-to-Metso shares to 0.95 from 0.84, the Glasgow-based company said today. That valued each Metso share at the equivalent of 30.49 euros, compared with a 22.75-euro market price on March 26, the day before Weir’s first proposal. Metso stock fell as much as 5.9 percent in Helsinki.
“The market doesn’t fully understand the potential in this company,” Metso Chairman Mikael Lilius said by telephone, adding that the company is evaluating a new strategy and measures to improve profit, which it will present in coming months. “Once we are able to communicate that, we think our decision will be proven right,” he said
The improved bid, in which shareholders of the target company would have owned 40 percent on the combined entity, failed to bring Metso’s management to the negotiating table, Weir said today. Combining the two companies had the potential to save at least 150 million pounds ($252 million). Metso undertook “thorough and careful consideration” following the proposal that coincided with a current market downturn, it said.
Metso shares fell 2.2 percent to 28.43 euros at the close in Helsinki. Weir declined 0.8 percent to 2,584 pence in London.
“We are clearly moving on from this particular opportunity,” Weir Chief Executive Officer Keith Cochrane said by telephone, adding that in terms of acquisitions the company has a “long list in the pipeline across all divisions.”
Metso responded to everything required, given that it was an unsolicited approach, Lilius said.
Taking into account savings from a merger, the offer valued Metso shares at 35.98 euros apiece, 58 percent more than their pre-approach level, said Weir, which also proposed a post-closing dividend equal to 2.13 euros.
Metso spurned Weir’s advances on the basis that its offer undervalued the company and a combination would damp its own growth prospects at a time when the investment cycle is poised to pick up.
“The mining industry is now at the bottom of the cycle,” Lilius said. “Whether it’s going to pick up next week or in two weeks, it’s hard to judge. Looking at Metso today is the wrong moment. We firmly believe the mining cycle is at the wrong point to have any sort of discussions.”
Merging with Metso would have allowed Weir to add rock crushers for the mining industry and valves for liquefied natural gas to target a wider range of customers. Competitors in the mining-equipment industry include Atlas Copco AB of Sweden and FLSmidth A/S of Denmark.
“I’m sure at some point the mining market will pick up, and that would have allowed Metso shareholders, alongside Weir shareholders, to benefit from that trend,” Weir CEO Cochrane said. “The timing of the approach frankly was irrelevant because it was an all-share deal. Our shares will benefit from a recovery in mining as well.”
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.
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