Glasgow-headquartered engineering firm Weir (WEIR) is increasing its focus on the resources space. The FTSE 250 company has announced plans to acquire Portland, Oregan-based mining tools business ESCO in a $1.29bn deal. It has also put its Flow Control arm up for sale.
The cash component of the deal, with 41% being satisfied by shares, will be funded by a £350m placing of new shares and debt.
By selling the Flow Control business, which principally serves the power generation markets, Weir is aligning itself more closely with mining and oil and gas.
In the first quarter of 2018 these were comfortably the strongest performers for Weir with oil and gas orders up 50% and minerals (mining) orders up 13%.
SHALE OF THE CENTURY
It has benefitted from a pick up in activity in the US shale industry to which it is major provider of pumps. In the words of chief executive officer Jon Stanton: ‘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.’
However, the commodities markets are highly cyclical and the new-look Weir will be arguably more exposed to movements in metals and energy prices.
AJ Bell investment director Russ Mould says: ‘This (deal) will leave the business almost entirely focused on the highly cyclical mining and oil and gas industries and potentially exposed to any downturn in commodities.
‘As a result of the deal, net debt is expected to hit two times earnings but the proceeds from the Flow Control sale, anticipated in 2019, should help reduce borrowings.’
