UPDATE 3-Finland's Metso rejects Weir's tie-up approach

Wed Apr 16, 2014 7:04am EDT

* Says Weir proposal not in the best interest of owners

* Weir says might not revise offer terms

* Metso shares down 3.5 pct, Weir down 1.5 pct (Adds premium calculated from Weir statement)

By Jussi Rosendahl and Stephen Eisenhammer

HELSINKI/LONDON, April 16 (Reuters) - Finland's Metso spurned a merger approach from rival engineering firm Weir on Wednesday, leaving the British company casting around for other ways to boost its mining equipment business.

Weir said there was no certainty it would improve the proposed offer, which would have valued Metso at around a $5 billion. Its plan ran into trouble as soon as it emerged on April 1, when the Finnish state said it opposed a takeover.

Metso's shares, which had surged after Weir's approach, were down 3.5 percent in Helsinki at 27.74 euros. That was still above the price Weir had proposed of around 25.6 euros per share. Weir stock was down 1.5 percent.

"The board of directors ... has come to the unanimous conclusion that this proposal is not in the best interest of shareholders," Metso said in a statement, adding it saw no reason to commence talks with Weir.

A deal would have helped Weir expand further into the crushing segment of the mining equipment industry, where Metso is a market leader.

Weir is keen to expand its mining arm after years of strong growth in its oil and gas division, which has seen profits triple since 2009. The company sits in a crowded mid-sized industrial sector which industry insiders say is ripe for consolidation in order to provide a wider range, and a greater scale, of equipment and services to cost-conscious clients.

Bankers have said a failure to merge with Metso could make Weir, already frequently the subject of takeover speculation, a target for big players such as General Electric or Honeywell that are keen to access the Glaswegian company's lucrative position in U.S. shale.

Weir said on Wednesday it believed its all-share proposal - in which Metso would have received about 37 percent of the new company - would have had significant benefits.

The firm said it offered 0.84 Weir share per Metso share held. Using the closing price for both companies on March 27 when the deal was proposed and the exchange rate at the time, that implied a 14 percent premium over Metso's share price.

"The Board of Weir believes that it has made an attractive merger proposal and there is no certainty that it will revise the terms of its proposal," it said in a statement.

A source had earlier told Reuters that Weir offered Metso a 5-10 percent premium over its recent share price.

Weir confirmed it had proposed that the combined company would have a strong presence and listings both in Finland and Britain. That was not enough for the Finnish state, which owns 11 percent of Metso and insisted the company could flourish alone.

Metso spun off its paper machine business Valmet at the start of 2014, basically halving the size of the company.

"The Metso Board remains extremely positive and confident in Metso's standalone growth and value creation prospects by pursuing its current strategy," the company said. ($1 = 0.7234 euros) (Reporting by Jussi Rosendahl and Stephen Eisenhammer; editing by Erica Billingham and Tom Pfeiffer)