Engineering company Weir (WEIR) gained 15.7% to £14.81, its biggest one-day advance since 1999, as it said it had agreed to sell its oil and gas division to US industrial giant Caterpillar Inc for $405 million (£314 million), including debt.

The move came after Weir announced in February that it was seeking to maximise value from the division, which had been hit by a slump in oil prices.

The sale would narrow the company's activities to the mining sector where the company is focused on being a premium mining technology operator, while the proceeds would be used to cut debt.

Shareholders will have to approve the deal, which is expected to be completed by the end of 2020.

AJ Bell investment director Russ Mould said: ‘By exiting oil and gas, Weir is effectively taking a big bet on mining – placing all of its chips in this area because, while oil and gas is a victim of a move away from fossil fuels, mining could benefit.

‘Weir clearly expects continued demand for metals in the production of items like renewable infrastructure and electric vehicles.

‘The proceeds from the divestment of Weir Oil & Gas to its much larger US counterpart Caterpillar can be funneled into the mining business.

‘However, the relatively modest amount of cash generated by the sale of a business which, as recently as 2018, generated nearly £100 million in profit probably reflects the fact it is being sold at the bottom of the cycle.’

Shore Capital analysts Akhil Patel and Tom Fraine noted: ‘With the volatility in the O&G division now separated/eliminated from the group, this exposes Weir to limited cyclicality (given its resilience and aftermarket exposure) and strengthens its earnings quality and cash generation characteristics.

‘While we are slightly surprised by the timing of the sale given the current oil and gas conditions, we are pleased to see the proposed transaction at a reasonable price and which significantly changes Weir investment case.’


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Issue Date: 05 Oct 2020