(Alliance News) - Weir Group PLC said Monday it has agreed to sell its entire Oil & Gas division to US-based engineering company Caterpillar Inc for a USD405 million enterprise value.
The Glasgow-headquartered engineering firm was the best performer in the FTSE 250 on Monday Morning, up 15% at 1,476.00 pence.
Weir said the decision follows its February announcement that it would seek to maximise value from Oil & Gas as part of its strategic transformation into a premium mining technology pure play.
This transformation will focus on "attractive markets" that are underpinned by worldwide demographic trends, net technology adoption, and the transition to low carbon. Weir intends to build on leading position within the mining supply chain from extraction to concentration.
Additionally, Weir's stronger balance sheet will enhance its flexibility and allow for investment in "future growth opportunities".
Net proceeds of the sale of Weir Oil & Gas will be used to reduce the company's leverage, with pro forma net debt to earnings before interest, tax, deprecation and amortisation on a pro forma basis of 1.9 times as of June 30.
Furthermore, transaction facilities representing a USD70 million cash tax benefit for Weir, which will be realised over the medium term.
The sale is expected to complete by 2020 end.
In 2019, the Oil & Gas division contributed a GBP36.4 million operating profit before exceptional items and intangibles amortisation and for the six months ended June 30 contributed a GP4.4 million operating loss. As at June 30, the Oil & Gas division has gross assets of GBP747.4 million and GBP542.9 million of net assets.
Weir Chief Executive Jon Stanton said: "We are pleased to have reached this agreement that delivers a great home for the Oil & Gas division and maximises value for our stakeholders. Alongside the previous sale of the Flow Control division and the acquisition of ESCO, it is a major milestone in transforming the group into a focused, premium mining technology business.
"It means Weir is ideally positioned to benefit from long-term structural demographic trends and climate change actions which will increase demand for essential metals that must also be produced more sustainably and efficiently. This will require the innovative engineering and close customer partnerships that define Weir, and it is why we are so excited about the future."
By Anna Farley; annafarley@alliancenews.com
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Weir Group (WEIR)