Weir Group Makes An Offer For Slimmed Down Metso

Just a few months after spinning off its low margin paper and pulp automation business, Metso (OTC:MXCYYconfirmed that it received an ‘unsolicited approach’ from the Weir Group (OTC:WEIGY) about a possible combination. Although the financial terms of the offer were not released, Metso’s shares still spiked over 20% after the rumors came out. Weir’s Board believes that ‘there is a strong strategic rationale for bringing the two companies together which would offer the opportunity for significant efficiencies and synergies, creating significant value for all shareholders.’ Makes sense considering both companies operate in the same space.

Metso has a few large shareholders including activist fund Cevian Capital and Finnish state fund Solidium whose support would be critical in pushing through any deal and the WSJ reports that the offer was met with a ‘cool reception’ from Solidium. Even if they were in favor, there is no guarantee a deal would get done or at what price it would be completed, so investing here is pure speculation. Shares of Metso had been down a little bit since the spin, but this news moved it nicely into the black. I doubt this offer gets made if Metso still retained Valmet so this seems like another data point supporting the idea that spinoffs really do make companies more ‘digestible’ and more attractive targets.

Disclosure: Author holds no position in any stock mentioned.