AUS
NZ
UK
CA
USA
IND
Summary
- Weir Groups’ oil and gas unit in North America will be acquired by Caterpillar
- The stock price of the company jumped from GBX 1,280 on October 2, to GBX 1,600.00 intraday on October 5
- Weir Groups focuses more on its mining unit as the division generates a revenue of more than £2 billion per annum
Scotland-headquartered global engineering business Weir Group Plc (LON:WEIR) is set to sell its oil and gas unit to America-based heavy equipment make Caterpillar Inc. for £314 million in a cash deal.
The unit, which employs over 2,000 people with most of them located in North America, witnessed a massive loss in the first half of 2020. The acquisition, however, needs a final approval from the shareholders of the Weir Group and will have to go through various other regulatory approvals. The deal is likely to get completed by the end of this year 2020.
Weir Group CEO Jon Stanton has expressed his pleasure with the latest transaction and feels Caterpillar’s renowned-products, services and staff will be a boon for the manufacturing firm in the coming months.
He further added that the deal would enable Weir Group to scale new heights and enhance its innovation, business and customer service experience in the future.
What does the deal mean to Weir Group?
The Weir Group was loss-making in the first half of this year, and the proceeds from this acquisition will be used to pare its debt. In fact, in February this year, Weir Group was looking to get rid of its oil and gas unit, which was hit hard due to a sharp fall in oil prices.
The group was seeking to exit power, oil and gas markets, and wanted to focus on its mining division, which produces the revenue of more than £2 billion annually for the company. Not only that Weir Group’s mining unit also manages most of the world's extracted copper.
From the company’s point of view, the mining unit offers myriad prospects in terms of generating revenue. For instance, mined copper is widely used in solar panels, electric vehicles, smartphones and wind turbines.
Furthermore, the acquisition will result in a $70 million cash tax benefit (US) to the Weir Group, which the firm can use to boost its mining division with the latest technologies.
Impact on Weir Group’s stock
The Weir Group’s stock saw a sharp spike in its performance as it jumped to GBX 1,600.00 intraday on October 5, from its earlier low GBX 1,280 on October 2. The surge can be called significant in the wake of the deal with Caterpillar.
Earlier, on March 30, the company’s stock price had slumped to GBX 666.20, owing to the coronavirus pandemic. However, with this deal, the FTSE 250 engineering company could pave the path for boosting its overall operations, which could eventually help the company to grow further.
The road ahead
The acquisition could be a major boost to both the firms considering their business aspirations, especially at a time when the world is gripped by the coronavirus pandemic. For Caterpillar, the deal provides a platform to widen its product base and offers the best solution to the service industry.
With a strong balance sheet, Caterpillar can further expand its business operations and service its customers in a much better way than before. Joe Creed, vice president at Caterpillar’s oil and gas unit, said that Weir Group’s well-established portfolio of pressure pumping and pressure control in its oil and gas unit helps the company to create better solutions for customers.
As far as Weir Group is concerned, the deal will place the firm in a better position to gain from long-term structural-demographic developments and climate change measures, which will boost the demand for vital metals. The deal will also help the company to have an exchange of innovative technology and enhance customer partnerships.
The latest deal has also come as a milestone for Weir Group considering the company’s previous sale of its flow control division in 2019 and the acquisition of ESCO in 2018. This deal offers a platform to the company to transform into the finest mining technology enterprise.
Moreover, the deal has come at the right time when the businesses are striving to find ground due to the COVID-19 pandemic. Though many industry experts believe that the deal came at a higher price, however, this has certainly left Weir Group in a very strong position as far business prospects are concerned, further enabling the company to plan its future investment.
