Weir shares up on $1bn deal, sale plan, orders boost

Jon Stanton, Weir Group CEO

Glasgow-based engineering giant Weir Group said on Thursday it agreed to buy Portland, Oregon-based ESCO Corp. for about $1 billion in cash and shares as it looks to bolster its mining business.

Weir also said it would start the process of selling its flow-control business which designs and manufactures process pumps and valves.

“Strategically, this is the right thing for Weir to be doing,” said Jefferies analyst Andy Douglas.

Further, Weir said in a trading update that its first-quarter orders rose 22%, with orders in its minerals business increasing more than 13%.

Oil and gas orders rose more than 50% “driven by pressure pumping demand in North American shale.” Flow control orders rose 2%.

The firm’s full-year constant currency expectations remain unchanged.

Weir shares rose about 5% to 2,224p to give the firm a current stock market value of around £4.7 billion, according to Reuters data.

Weir employs around 15,000 people around the world.

Weir Group CEO Jon Stanton said: “Today we are announcing an important development of our portfolio as we focus on building on our core strengths in minerals and oil & gas. 

“With ESCO we’ll be joined by a world-class team and add another leading global brand. 

“Together, Weir Minerals and ESCO will create a unique customer proposition as the premium provider of mission critical surface mining solutions from extraction to concentration, built on proprietary technology, superior wear life and supported by an unrivalled service network. 

“The acquisition meets our near-term financial criteria before we pursue the revenue opportunities from bringing ESCO products into new markets through our global network. 

“We are acquiring a high quality business at the right time, with the market in the early stages of its recovery, providing opportunities for long-term growth. 

“We intend to initiate a process to sell Flow Control to reallocate capital to build further on our core platforms.

“Weir will be a focused premium brand business with leading technology, increased scale, an improved mix of mining and oil and gas markets, higher aftermarket sales and the financial strength to invest in growth.”

Weir said ESCO delivered revenues of $632 million in 2017 and strong growth in 2018 is expected to deliver full year revenues of around $675 million.

ESCO shareholders will receive 59% of the price in cash, part funded from the net proceeds from a 7.4% equity placing of Weir shares via an accelerated bookbuild. 

ESCO shareholders will also receive 41% paid in new Weir shares, currently representing about 6% of the enlarged Weir share capital.

“The ESCO board has unanimously approved the transaction and support has been received from the required majority of ESCO shareholders,” said Weir.

Weir said it will place up to 16,699,763 new ordinary shares, which represents up to 7.4% of the existing issued ordinary share capital (excluding treasury shares) of the company.

Goldman Sachs International and UBS Limited are acting as joint global coordinators and joint bookrunners on the share placing.

*Later on Thursday, Weir said a total of 16,699,763 new ordinary shares in Weir had been placed by book runners Goldman Sachs International and UBS Limited at a price of 2,175p per share, raising gross proceeds of £363 million.

The issue price of the placing represents a discount of 2.8%. 

Weir said BlackRock Investment Management currently holds more than 10% of the shares of Weir “so for the purposes of UK Listing Rule 11 it is therefore classified as a related party.”

Weir said BlackRock Investment Management “has agreed to subscribe for 2.1 million shares raising gross proceeds of £47 million.”