Weir turns predator as sector shakes out
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Your support makes all the difference.WEIR GROUP, the Scottish pumps and valves company, returned to the offensive in the consolidation of the engineering sector yesterday when it said it had pounds 250m in facilities for acquisitions.
The group revealed the size of the war chest, equivalent to nearly half the group's market worth, just three weeks after beating off a pounds 620m takeover bid by Flowserve, a smaller US competitor. On 2 March, Flowserve dropped its 300p-a-share bid after Weir said it "failed by a wide margin to reflect the company's value".
Weir said the size of its war chest indicated it was now in a position to be a predator rather than a target.
Sir Ron Garrick, chairman and chief executive, said Tuesday's deal between ABB and Alstom, creating the world's biggest power-generating company, suggested more mergers and acquisitions were likely.
Like its rivals, Weir has been forced to look for alternative sources of growth because of the slow-down in the oil and power sectors. Yesterday it predicted only slight growth in profits, saying it would be a "difficult year for the pump business". Alternative plans include growing by a series of "bolt-on" acquisitions.
Duncan Whyte, who in June will join from Scottish Power to be chief executive, plans to develop the group's after-sale service business, where profit margins are higher than in Weir's core business.
The falling demand for core products was offset by increases in other areas. Sir Ron said he expected further defence orders, including contracts to supply three Astute hunter-killer submarines with machinery for launching Tomahawk cruise missiles, of the kind being used in Kosovo.
The City marked the shares down in spite of a 6.5 per cent rise in underlying pre-tax profits to pounds 64m - ahead of expectations. The shares fell 4 per cent to 259p.
Analysts blamed the fall on profit-taking after the recent strong run in engineering stocks. Weir is on a historic multiple of 11, broadly in line with its peers. But a pick-up in orders is expected in 2000. Greig Middleton recommends a buy on a three-year view.
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