April 19, 2018 / 6:41 AM / a month ago

UK's Weir to buy U.S. mining tools maker ESCO for $1.05 billion

(Reuters) - Weir Group Plc (WEIR.L), which makes pumps and valves for the mining and energy industries, said it had agreed to buy ESCO Corp. for $1 billion as it looks to bolster its mining business.

Weir shares rose as much as 6.6 percent to 2,258 pence on the news. ESCO shareholders will receive 59 percent of the deal value in cash, the remainder in new Weir shares.

Weir plans to place about 16.7 million shares, or about 7.4 percent of its share capital, to partly fund the deal.

Portland, Oregon-based ESCO, which has an enterprise value of $1.29 billion, makes parts for surface mining and construction industries, including ground engaging tools to move earth.

Equipment makers like Weir have benefited from higher commodity prices as mining companies boost spending and explore brownfield projects. French tyre maker Michelin (MICP.PA) a month ago said it planned to buy British engineer Fenner (FENR.L) for 1.2 billion pounds ($1.7 billion), to better serve miners and benefit from an industry recovery.

“We are acquiring a high quality business at the right time, with the market in the early stages of its recovery, providing opportunities for long-term growth,” Weir’s Chief Executive Officer Jon Stanton said.

The company expects ESCO to accelerate Weir’s portfolio development through the expansion of opportunities for parts and components for mining equipments.

    The deal is expected to add to earnings per share in the first full year post completion, expected in early third quarter, Weir said.

    ESCO is expected to generate revenue of about $675 million and pro-forma adjusted earning before interest, tax and amortization of about $80 million in 2018, Weir said.”Strategically, this is the right thing for Weir to be doing,” Jefferies analyst Andy Douglas said, adding that acquisition looked “very solid” and the company had not overpaid.

    Weir also said it would start a process to sell its flow- control division, which designs and manufactures process pumps and valves for power, oil and gas industries.

    The flow-control business contributed $365 million pounds in revenue, or about 15.5 percent of its total revenue, last year.

    The 147 year-old company said its first-quarter orders rose 22 percent, with orders in its mining business increasing more than 13 percent. Oil and gas orders rose more than 50 percent, helped by higher demand for pressure pumping equipment in North America.

    Weir maintained its full-year growth outlook for revenue and profit, on a constant currency basis.

    Reporting by Arathy S Nair in Bengaluru; Editing by Gopakumar Warrier and Jon Boyle

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