Weir Group Regulatory News (WEIR)

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR IMMEDIATE RELEASE  

Proposed sale of Weir Oil & Gas to Caterpillar Inc.

Transforming Weir into a premium mining technology pure play

The Weir Group PLC ("Weir" or "the Group") is pleased to announce that it has entered into an agreement for the all-cash sale of its entire Oil & Gas division to Caterpillar Inc. for an Enterprise Value of US$405m (£314m)1, subject to customary working capital and debt-like adjustments at closing (the "Transaction").

This follows the announcement in February 2020 that Weir would seek to maximise value from its Oil & Gas division as it continued its strategic transformation into a premium mining technology pure play.

Delivering transformation of Weir into a premium mining technology pure play

· Focused on attractive markets underpinned by global demographic trends, the transition to a low carbon society and adoption of new technologies in the mining industry

· Differentiated aftermarket, service and technology offering with proven earnings stability and strong cash generation through the cycle

· Strategic intent to build on leading mission-critical positions in the mining supply chain from extraction to concentration and tailings management

· Strengthened balance sheet to provide enhanced flexibility to invest in future growth opportunities

Transaction highlights: A strong outcome for all stakeholders

· Agreement to sell Oil & Gas division to Caterpillar Inc. for an Enterprise Value of US$405m (£314m)1

· Net proceeds to reduce the Group's leverage; pro forma Net Debt/EBITDA at 30 June 2020 of 1.9x

· Transaction facilitates a $70m US cash tax benefit for Weir to be realised over the medium term

· Transaction subject to Weir shareholder approval; Class 1 Circular to be published in due course

· Completion expected by the end of 2020, assuming normal regulatory clearances

Jon Stanton, Weir Group Chief Executive Officer 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."

Joe Creed, Vice President of Caterpillar's Oil & Gas and Marine division said:

"Combining Weir Oil & Gas's established pressure pumping and pressure control portfolio with Cat's engines and transmissions enables us to create additional value for customers. This acquisition will expand our offerings to one of the broadest product lines in the well service industry."

As a Class 1 Transaction the sale is conditional upon the approval of Weir shareholders with a Circular to be posted in due course, including a timetable for a General Meeting. The Oil & Gas division will now be classified as held for sale and will be reported in discontinued operations.

A short pre-recorded presentation on the main terms of the Transaction and Weir's future as a mining technology pure play is available at www.investors.Weir.

1. Based on a 2 October 2020 exchange rate of US$1.29/£

Background and reasons for the Transaction

Since 2016 the Group's strategy has been to focus its capital allocation on its mining technology businesses, which reflects its core strengths. The Board believes there are clear structural growth trends that the Group is well placed to benefit from including global demographic trends, carbon transition and specific mining industry factors, such as declining ore grades and miners' emissions reduction targets. These trends all support demand for the Group's technology and are expected to provide a strong platform for sustainable growth.

The Group has made significant progress on this strategy, including the acquisition and successful integration of ESCO in 2018, the sale of the Group's Flow Control business in 2019, and the continued strengthening of its Minerals division. In February 2020 the Group announced its intention to become a mining technology pure play and that it was taking the necessary steps to maximise value from the Oil & Gas division at the right time.

The business being sold comprises the entirety of the Oil & Gas division of the Group, including its North American and International operations. It is made up of the Pressure Pumping and Pressure Control business units, and associated aftermarket spares, equipment repairs, upgrades, certification and asset management, and field services supporting those units. The Transaction will be effected through a combination of the sale of Oil & Gas companies and assets. The Oil & Gas business is led by Paul Coppinger.

In the financial year ended 31 December 2019, Oil & Gas contributed an operating profit (before exceptional items and intangibles amortisation) of £36.4m to the Group. For the six months ended 30 June 2020, Oil & Gas contributed an operating loss (before exceptional items and intangibles amortisation) of £4.4m. As at 30 June 2020, Oil & Gas had gross assets of £747.4m and net assets of £542.9m. Further financial information will be set out in the Class 1 Circular as detailed below.

The form of the Transaction in the US allows the Group to retain certain deferred tax deductions with a tax value of $24.5m. In addition, an ordinary corporate income tax loss with an estimated tax value of $45.6m will be generated in the US as a result of the transaction. These combined tax attributes of $70.1m will be available to the Group to offset against future taxable income generated in the US, with a corresponding benefit to cash tax over the medium term. These estimated tax benefits are not included in the stated consideration figure of $405m.

As the Transaction constitutes a Class 1 Transaction under the Listing Rules it is therefore conditional on the passing of the ordinary resolution by Weir shareholders, in addition to certain regulatory approvals. A Circular containing further details of the Transaction, together with a notice to convene a General Meeting, will be sent to shareholders in due course. Completion of the Transaction is expected by the end of 2020.

The future of Weir - Mining pure play

Following completion of the Transaction, Weir will be a focused, premium mining technology business. It will operate through two divisions: Minerals and ESCO. Minerals is a global leader in the provision of mill circuit technology and services as well as the market leader in slurry-handling equipment and associated aftermarket support for abrasive high-wear applications. Its differentiated technology is used in mining, infrastructure, oil and gas and general industrial markets around the world. ESCO is a global leader in ground engaging tools for large mining machines. The division also applies its differentiated technology to infrastructure markets including construction, dredging and sand and aggregates.

A premium mining technology business

Weir has a portfolio of market-leading technology providing mission-critical solutions used in highly abrasive applications from ore extraction through to processing and tailings management including slurry and positive displacement pumps, ground engaging tools and high pressure grinding rolls.

The Group's large installed base of original equipment is served by a unique global footprint which includes regional manufacturing plants and local service facilities in more than 50 countries, serving a broad customer base and providing increased protection from political uncertainty.

The Group's technology is used in extreme operating environments that generate significant aftermarket demand for higher-margin spare parts, which are expected to represent around 80% of revenues. This recurring revenue provides a high degree of resilience, as reaffirmed during the Covid-19 pandemic where mining has been deemed an essential industry. The Group will continue to target sector-leading performance through the cycle, reflecting its premium offering.

Maximising long-term structural growth opportunities through its differentiated 'We are Weir' strategy

Weir's purpose will continue to be to enable the sustainable and efficient delivery of natural resources. The Group has chosen to focus on markets that will benefit from long-term structural trends that underpin demand for its technology. These include demographic changes such as population growth, urbanisation and the rise of the middle class, particularly in Asia. In addition, electrification of energy production and transport will require increased supplies of essential metals such as copper. However, it is becoming more complex to access these resources due to trends such as ongoing ore grade declines. Miners are also increasingly committing to making their operations 'Net Zero' from an emissions perspective which will require a technology transformation in the industry that Weir is well placed to help lead.

The Group will maximise these opportunities through its 'We are Weir' strategic framework which differentiates the business through its focus on People, Customers, Technology and Performance.

Engineering critical solutions for smarter, more efficient and sustainable mining

The Group's product portfolio is concentrated on highly abrasive applications that generate significant demand for aftermarket spares and services. Through continuous innovation and customer proximity, the Group's solutions lower total cost of ownership by improving productivity. Increasingly, demand for the Weir's technology is being driven by social and environmental scrutiny of mining operations with a particular emphasis on reducing energy, water and waste, where the Group has a comprehensive range of solutions. These include improving productivity and safety in extraction, reducing energy and water consumption in comminution, and developing tailings solutions that allow the industry's biggest waste product to be safely stored or repurposed.

As a global mining technology leader, with an aftermarket-focused business model, Weir is ideally placed to benefit from these trends. This is reflected in the Group's technology roadmap, which is focused on making miners' operations smarter, more efficient and sustainable.

Investing in attractive growth opportunities

The Directors expect the Transaction to significantly enhance the Group's earnings stability and further strengthen the balance sheet, while providing a very clear strategic focus. It will continue to benefit from the highly cash generative nature of its operations with Net Debt /EBITDA on a pro forma basis of 1.9x as of 30 June 2020.

The Group will continue to invest in both organic and inorganic growth opportunities, including extending its technology leadership positions.

Producing significant value for stakeholders

The Group has a strong record of execution in its mining business with Minerals delivering strong growth and operating margins between 17% and 20% through the cycle. Following the acquisition of ESCO in 2018, the Group has also delivered a 500bps increase in its margins to 16.1% for the period ending 30 June 2020. On completion of the Transaction, Weir will be better positioned to deliver on its ambition of long-term sustainable growth reflecting the quality and resilience of its mining technology business, the positive prospects of its markets and the differentiation provided by its 'We are Weir' strategy.

The completion of the Transaction also enables the Group to review its functional operating structure and broader financial model to maximise future opportunities. Further details will be provided in due course.

About The Weir Group PLC

Founded in 1871, The Weir Group PLC is a premium mining technology business whose purpose is to make customers' operations more sustainable and efficient. The Group is ideally positioned to benefit from structural trends that support long-term demand for its technology including the need for more essential metals to support demographic changes and the electrification of power and transport. Weir's highly engineered technology enables these critical resources to be produced using less energy, water and waste - reducing customers' total cost of ownership. The Group has c.13,000 employees in over 50 countries and has been listed on the London Stock Exchange since 1946.

Weir Oil & Gas is based in Fort Worth, Texas, and is a leading provider of pressure pumping and pressure control solutions to upstream markets.

UBS AG London Branch is authorised and regulated by the Financial Market Supervisory Authority in Switzerland. It is authorised by the Prudential Regulation Authority and subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority in the United Kingdom. UBS AG London Branch is acting exclusively as financial adviser to The Weir Group PLC and no one else in connection with the process. In connection with such matters, UBS AG London Branch will not regard any other person as its client, nor will it be responsible to any other person for providing the protections afforded to its clients or for providing advice in relation to the process, the contents of this announcement or any other matter referred to herein.

Goldman Sachs International is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Goldman Sachs International is acting exclusively for Weir and no one else in connection with the Transaction and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Transaction and will not be responsible to anyone other than Weir for providing the protections afforded to Goldman Sachs International's clients nor for giving advice in relation to the Transaction or any other arrangement referred to in this announcement.