* Second offer valued Metso at about 4.5 billion euros
* Metso said bid undervalued company
* Scotland's Weir keen to expand its mining business
* Bankers have said Weir itself could become takeover target (Adds Weir CEO quote)
By Ron Bousso
LONDON, May 28 (Reuters) - Scottish engineering firm Weir Group abandoned efforts to acquire rival Metso after the Finnish company rejected a second, improved takeover bid.
Metso said on Wednesday that the latest offer - which valued it at around 4.5 billion euros ($6.13 billion), up by around 20 percent from an April bid - undervalued the firm as it has a bright future as a stand-alone company.
Weir said Metso shareholders would have owned around 40 percent of the combined entity and the two firms would have made at least 150 million pounds in annual cost savings as a joint group.
"The most disappointing thing was that the offer in itself wasn't enough for anyone from Metso to engage with us," Weir Chief Executive Keith Cochrane told Reuters.
"I am sure they have good reasons for coming to that conclusion. We will only do deals at the right price and therefore we are moving on - and very much, from our perspective, this deal is over," he said.
A deal would have helped Weir expand further into the heavy mining equipment sector, in which Metso is a market leader.
The Scottish firm is keen to expand its mining business after years of strong growth in its oil and gas division, which has seen profits triple since 2009.
But Metso rejected the offer on Wednesday, saying it did not benefit the firm.
"We believe that Metso has a real opportunity to create significant value for all its shareholders by pursuing its own course and that the proposal from Weir significantly undervalues this opportunity and that a takeover by Weir at these conditions would not be in our shareholders' best interests," said board Chairman Mikael Lilius.
Weir 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.
Shares in Weir group were trading 0.5 percent higher at 0915 GMT, while Metso shares were down 3.34 percent.
Weir's improved bid of 30.49 euros per share was made on May 20 and represented a 34 percent premium to Metso's share price on May 26, the day before the bid was rejected.
The new proposal included a special dividend payment to all shareholders of the combined group of 2.13 euros per share.
Weir's initial approach for Metso was for around 25.6 euros per share.
$1 = 0.7345 Euros Reporting by Sarah Young, Karolin Schaps and Ron Bousso in London, and Jussi Rosendahl in Helsinki; Editing by Pravin Char