19th Apr 2018 11:32
LONDON (Alliance News) - Weir Group PLC on Thursday said it intends to focus on building its core strengths in its minerals and oil & gas divisions as it agreed to acquire mining equipment firm ESCO Corp and plans to sell its Flow Control division.
The stock was trading 5.1% higher at 2,226.00 pence per share early on Thursday.
The engineering company said it entered into a binding deal to buy Portland, Oregon-based ESCO for an equity value of USD1.1 billion and an estimated enterprise value of GBP1.3 billion.
Weir said that it intends to partly fund the purchase through 16.7 million new shares placing, which represent about 7.4% of the Weir's existing share capital.
Goldman Sachs International and UBS Ltd will be the joint bookrunners in the placing, the company said.
Weir expects to complete the transaction in the third quarter of 2018, it said. ESCO shareholders will receive 59% of the sum in cash and 41% paid in Weir shares. The cash payment will be put together from the proceeds of the share placing and the company's existing debt facilities.
In the event that the agreement does not complete, Weir said that it will retain the proceeds of the placing for other potential acquisition opportunities and general purposes.
Weir said ESCO posted revenue of USD632.0 million in 2017 and earnings before interest, taxes and amortization of USD68.0 million. In addition, its trading in the first quarter of 2018 has followed similar positive trends to Weir's minerals business.
The company said it intends to run ESCO as a stand-alone business for the remainder of 2018, and expects ESCO to generate annual revenue about USD675.0 million and Ebita around USD80.0 million following the acquisition.
Also, the group said that upon completion of the acquisition, ESCO Chairman & Chief Executive Officer Cal Collins will step down from his role and join Weir as non-executive director.
In addition, Weir said that it intends to sell its Flow Control business to focus on its main minerals and oil & gas markets. In case of disposal, the company said it will use proceeds to fund future investment in growth in its core platforms. However, it is not expecting these funds before 2019.
"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," said Stanton.
"We intend to initiate a process to sell Flow Control to reallocate capital to build further on our core platforms," Stanton added.
In the separate statement, Weir said that it is confident to meet market expectations for its full-year revenue, as order input grew in the first quarter.
The group said that order input in the first quarter was 22% ahead of the prior year, resulting in a higher revenue, on a constant currency basis.
The company's largest minerals business continued to benefit from supportive commodity prices, it said, with order input up 13% compared to the prior year. Weir said it expects to deliver moderately higher constant currency revenue and slightly higher full-year operating margins.
Weir's oil & gas business order input doubled in the quarter as "strong" drilling and completion activity levels continued in North American markets.
However, Weir noted challenging oil & gas market conditions due to competitive pricing. The company said it anticipates a strong increase in constant currency divisional revenue and profits, delivering mid-teens operating margins.
Weir said that its Flow Control business showed "early signs of recovery" with order input growing 2.0% on the prior year. The company forcasts this division to deliver "broadly" stable full year constant currency revenue.
"The group performed strongly in the first quarter, outperforming its main markets through an intense focus on helping its customers meet their operating goals in improving conditions," said Chief Executive Jon Stanton.
"Our good start to the year reflects our anticipated progress at this stage of 2018 and our full year outlook of strong constant currency revenue and profit growth remains unchanged," Stanton added.
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