Weir Group’s plans to create a £8.5bn engineering super group with Finnish rival Metso have been opposed by the country’s state investment fund.
The Scottish company has proposed an all-share deal in which Metso shareholders would receive 40 per cent of the new company and is offering a 5 to 10 per cent premium over Metso's recent share price, a source familiar with the matter told Reuters.
The source said the approach was structured as a merger in which Weir shareholders would end up with most of the combined entity but the new company's board would be staffed with both Metso and Weir executives.
The result would be a "stronger Finnish company" and "the proposed structure through an all-share merger will allow existing shareholders to benefit from the huge synergies," the source said.
But the head of state investment fund Solidium, which owns 11 per cent of Metso, rejected a takeover of Metso, saying it had a bright future as an independent company.
"I don't think this is the right time to sell Metso to Weir Group, or to sell it to anyone," said Solidium managing director Kari Jarvinen.
One hedge fund investor who closely follows Finnish deals said such a public rebuttal by the state fund appeared to have stopped any deal in its tracks and a London-based Finnish analyst agreed, saying: "I think it's quite a strong comment and I'm surprised the market hasn't reacted to it".
Metso shares were up 19 per cent at 3.48pm yesterday, suggesting investors still believed some kind of deal was possible. Weir was down 1.3 percent.
"What the market maybe misses a little bit is that Metso is the backbone of Finnish industries. It has a pretty important supply chain and there is in the investor base a lot of retail investors," the analyst added.
Weir Group has seen profits triple since 2009 as the firm expanded into the US and capitalised on the growth of shale oil and gas – the company now supplies around 40 per cent of the pressure pumps used in the US shale oil and gas sector.
But historically Weir's focus has been on the mining sector, which still accounts for over half of its revenue, and analysts said a move for Metso could mark a strategic turn back to its core market.
"From a strategic sense it looks reasonably sensible. The core business has always been on the minerals side," a London analyst said.
A deal would help Glasgow-based Weir expand further into the crushing segment of the mining equipment industry, where Metso is a market leader.
Like Weir, Metso has a growing focus on services, which have become increasingly important after mining companies cut back on new projects and stopped buying new equipment to reduce costs.
Metso spun off its paper machine business Valmet at the start of the year, basically halving the size of the company and making it a more attractive acquisition target, analysts said.
The Finnish state's Metso holding dates back to 1946, when state-owned metal workshops were merged as Valmet Oy. Following several mergers and acquisitions, these became Metso in 1999.
Finland's government had recently said it could sell stakes in some companies before 2015 to boost its budget by €1.9bn (£1.6bn). The state holds stakes in 15 of Helsinki's listed firms and controls 44 others.