TIDMWEIR
RNS Number : 0353B
Weir Group PLC
05 October 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR IMMEDIATE
RELEASE
Proposed sale of Weir Oil & Gas to Caterpillar Inc.
Transforming Weir into a premium mining technology pure play
The Weir Group PLC ("Weir" or "the Group") is pleased to
announce that it has entered into an agreement for the all-cash
sale of its entire Oil & Gas division to Caterpillar Inc. for
an Enterprise Value of US$405m (GBP314m)(1) , subject to customary
working capital and debt-like adjustments at closing (the
"Transaction").
This follows the announcement in February 2020 that Weir would
seek to maximise value from its Oil & Gas division as it
continued its strategic transformation into a premium mining
technology pure play.
Delivering transformation of Weir into a premium mining
technology pure play
-- Focused on attractive markets underpinned by global
demographic trends, the transition to a low carbon society and
adoption of new technologies in the mining industry
-- Differentiated aftermarket, service and technology offering
with proven earnings stability and strong cash generation through
the cycle
-- Strategic intent to build on leading mission-critical
positions in the mining supply chain from extraction to
concentration and tailings management
-- Strengthened balance sheet to provide enhanced flexibility to
invest in future growth opportunities
Transaction highlights: A strong outcome for all
stakeholders
-- Agreement to sell Oil & Gas division to Caterpillar Inc.
for an Enterprise Value of US$405m (GBP314m)(1)
-- Net proceeds to reduce the Group's leverage; pro forma Net
Debt/EBITDA at 30 June 2020 of 1.9x
-- Transaction facilitates a $70m US cash tax benefit for Weir
to be realised over the medium term
-- Transaction subject to Weir shareholder approval; Class 1
Circular to be published in due course
-- Completion expected by the end of 2020, assuming normal regulatory clearances
Jon Stanton, Weir Group Chief Executive Officer said:
"We are pleased to have reached this agreement that delivers a
great home for the Oil & Gas division and maximises value for
our stakeholders. Alongside the previous sale of the Flow Control
division and the acquisition of ESCO, it is a major milestone in
transforming the Group into a focused, premium mining technology
business.
It means Weir is ideally positioned to benefit from long-term
structural demographic trends and climate change actions which will
increase demand for essential metals that must also be produced
more sustainably and efficiently. This will require the innovative
engineering and close customer partnerships that define Weir, and
it is why we are so excited about the future."
Joe Creed, Vice President of Caterpillar's Oil & Gas and
Marine division said:
"Combining Weir Oil & Gas's established pressure pumping and
pressure control portfolio with Cat's engines and transmissions
enables us to create additional value for customers. This
acquisition will expand our offerings to one of the broadest
product lines in the well service industry."
As a Class 1 Transaction the sale is conditional upon the
approval of Weir shareholders with a Circular to be posted in due
course, including a timetable for a General Meeting. The Oil &
Gas division will now be classified as held for sale and will be
reported in discontinued operations.
A short pre-recorded presentation on the main terms of the
Transaction and Weir's future as a mining technology pure play is
available at www.investors.Weir .
1. Based on a 2 October 2020 exchange rate of US$1.29/GBP
Enquiries:
Investors: Stephen Christie +44 (0) 141 308 3707
Media: Raymond Buchanan +44 (0) 141 308 3781
Citigate Dewe Rogerson: Chris Barrie +44 (0) 207 638 9571
/ Kevin Smith Weir@citigatedewerogerson.com
-------------------------------------
UBS Investment Bank:
Lead Financial Advisor, Joint Sponsor and Joint Corporate Broker
David James, Jonathan Rowley, Sandip Dhillon
Goldman Sachs International:
Joint Financial Advisor, Joint Sponsor and Joint Corporate Broker
Karen Cook, Owain Evans, Bertie Whitehead
Background and reasons for the Transaction
Since 2016 the Group's strategy has been to focus its capital
allocation on its mining technology businesses, which reflects its
core strengths. The Board believes there are clear structural
growth trends that the Group is well placed to benefit from
including global demographic trends, carbon transition and specific
mining industry factors, such as declining ore grades and miners'
emissions reduction targets. These trends all support demand for
the Group's technology and are expected to provide a strong
platform for sustainable growth.
The Group has made significant progress on this strategy,
including the acquisition and successful integration of ESCO in
2018, the sale of the Group's Flow Control business in 2019, and
the continued strengthening of its Minerals division. In February
2020 the Group announced its intention to become a mining
technology pure play and that it was taking the necessary steps to
maximise value from the Oil & Gas division at the right
time.
The business being sold comprises the entirety of the Oil &
Gas division of the Group, including its North American and
International operations. It is made up of the Pressure Pumping and
Pressure Control business units, and associated aftermarket spares,
equipment repairs, upgrades, certification and asset management,
and field services supporting those units. The Transaction will be
effected through a combination of the sale of Oil & Gas
companies and assets. The Oil & Gas business is led by Paul
Coppinger.
In the financial year ended 31 December 2019, Oil & Gas
contributed an operating profit (before exceptional items and
intangibles amortisation) of GBP36.4m to the Group. For the six
months ended 30 June 2020, Oil & Gas contributed an operating
loss (before exceptional items and intangibles amortisation) of
GBP4.4m. As at 30 June 2020, Oil & Gas had gross assets of
GBP747.4m and net assets of GBP542.9m. Further financial
information will be set out in the Class 1 Circular as detailed
below.
The form of the Transaction in the US allows the Group to retain
certain deferred tax deductions with a tax value of $24.5m. In
addition, an ordinary corporate income tax loss with an estimated
tax value of $45.6m will be generated in the US as a result of the
transaction. These combined tax attributes of $70.1m will be
available to the Group to offset against future taxable income
generated in the US, with a corresponding benefit to cash tax over
the medium term. These estimated tax benefits are not included in
the stated consideration figure of $405m.
As the Transaction constitutes a Class 1 Transaction under the
Listing Rules it is therefore conditional on the passing of the
ordinary resolution by Weir shareholders, in addition to certain
regulatory approvals. A Circular containing further details of the
Transaction, together with a notice to convene a General Meeting,
will be sent to shareholders in due course. Completion of the
Transaction is expected by the end of 2020.
The future of Weir - Mining pure play
Following completion of the Transaction, Weir will be a focused,
premium mining technology business. It will operate through two
divisions: Minerals and ESCO. Minerals is a global leader in the
provision of mill circuit technology and services as well as the
market leader in slurry-handling equipment and associated
aftermarket support for abrasive high-wear applications. Its
differentiated technology is used in mining, infrastructure, oil
and gas and general industrial markets around the world. ESCO is a
global leader in ground engaging tools for large mining machines.
The division also applies its differentiated technology to
infrastructure markets including construction, dredging and sand
and aggregates.
A premium mining technology business
Weir has a portfolio of market-leading technology providing
mission-critical solutions used in highly abrasive applications
from ore extraction through to processing and tailings management
including slurry and positive displacement pumps, ground engaging
tools and high pressure grinding rolls.
The Group's large installed base of original equipment is served
by a unique global footprint which includes regional manufacturing
plants and local service facilities in more than 50 countries,
serving a broad customer base and providing increased protection
from political uncertainty.
The Group's technology is used in extreme operating environments
that generate significant aftermarket demand for higher-margin
spare parts, which are expected to represent around 80% of
revenues. This recurring revenue provides a high degree of
resilience, as reaffirmed during the Covid-19 pandemic where mining
has been deemed an essential industry. The Group will continue to
target sector-leading performance through the cycle, reflecting its
premium offering.
Maximising long-term structural growth opportunities through its
differentiated 'We are Weir' strategy
Weir's purpose will continue to be to enable the sustainable and
efficient delivery of natural resources. The Group has chosen to
focus on markets that will benefit from long-term structural trends
that underpin demand for its technology. These include demographic
changes such as population growth, urbanisation and the rise of the
middle class, particularly in Asia. In addition, electrification of
energy production and transport will require increased supplies of
essential metals such as copper. However, it is becoming more
complex to access these resources due to trends such as ongoing ore
grade declines. Miners are also increasingly committing to making
their operations 'Net Zero' from an emissions perspective which
will require a technology transformation in the industry that Weir
is well placed to help lead.
The Group will maximise these opportunities through its 'We are
Weir' strategic framework which differentiates the business through
its focus on People, Customers, Technology and Performance.
Engineering critical solutions for smarter, more efficient and
sustainable mining
The Group's product portfolio is concentrated on highly abrasive
applications that generate significant demand for aftermarket
spares and services. Through continuous innovation and customer
proximity, the Group's solutions lower total cost of ownership by
improving productivity. Increasingly, demand for the Weir's
technology is being driven by social and environmental scrutiny of
mining operations with a particular emphasis on reducing energy,
water and waste, where the Group has a comprehensive range of
solutions. These include improving productivity and safety in
extraction, reducing energy and water consumption in comminution,
and developing tailings solutions that allow the industry's biggest
waste product to be safely stored or repurposed.
As a global mining technology leader, with an
aftermarket-focused business model, Weir is ideally placed to
benefit from these trends. This is reflected in the Group's
technology roadmap, which is focused on making miners' operations
smarter, more efficient and sustainable.
Investing in attractive growth opportunities
The Directors expect the Transaction to significantly enhance
the Group's earnings stability and further strengthen the balance
sheet, while providing a very clear strategic focus. It will
continue to benefit from the highly cash generative nature of its
operations with Net Debt /EBITDA on a pro forma basis of 1.9x as of
30 June 2020.
The Group will continue to invest in both organic and inorganic
growth opportunities, including extending its technology leadership
positions.
Producing significant value for stakeholders
The Group has a strong record of execution in its mining
business with Minerals delivering strong growth and operating
margins between 17% and 20% through the cycle. Following the
acquisition of ESCO in 2018, the Group has also delivered a 500bps
increase in its margins to 16.1% for the period ending 30 June
2020. On completion of the Transaction, Weir will be better
positioned to deliver on its ambition of long-term sustainable
growth reflecting the quality and resilience of its mining
technology business, the positive prospects of its markets and the
differentiation provided by its 'We are Weir' strategy.
The completion of the Transaction also enables the Group to
review its functional operating structure and broader financial
model to maximise future opportunities. Further details will be
provided in due course.
About The Weir Group PLC
Founded in 1871, The Weir Group PLC is a premium mining
technology business whose purpose is to make customers' operations
more sustainable and efficient. The Group is ideally positioned to
benefit from structural trends that support long-term demand for
its technology including the need for more essential metals to
support demographic changes and the electrification of power and
transport. Weir's highly engineered technology enables these
critical resources to be produced using less energy, water and
waste - reducing customers' total cost of ownership. The Group has
c.13,000 employees in over 50 countries and has been listed on the
London Stock Exchange since 1946.
Weir Oil & Gas is based in Fort Worth, Texas, and is a
leading provider of pressure pumping and pressure control solutions
to upstream markets.
UBS AG London Branch is authorised and regulated by the
Financial Market Supervisory Authority in Switzerland. It is
authorised by the Prudential Regulation Authority and subject to
regulation by the Financial Conduct Authority and limited
regulation by the Prudential Regulation Authority in the United
Kingdom. UBS AG London Branch is acting exclusively as financial
adviser to The Weir Group PLC and no one else in connection with
the process. In connection with such matters, UBS AG London Branch
will not regard any other person as its client, nor will it be
responsible to any other person for providing the protections
afforded to its clients or for providing advice in relation to the
process, the contents of this announcement or any other matter
referred to herein.
Goldman Sachs International is authorised by the Prudential
Regulation Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority. Goldman Sachs
International is acting exclusively for Weir and no one else in
connection with the Transaction and will not regard any other
person (whether or not a recipient of this announcement) as a
client in relation to the Transaction and will not be responsible
to anyone other than Weir for providing the protections afforded to
Goldman Sachs International's clients nor for giving advice in
relation to the Transaction or any other arrangement referred to in
this announcement.
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