Metso: Weir not?

Sometimes the flowers and the chocolates just don't impress. Scottish engineer Weir Group approached Metso, its Finnish peer, on March 26th with an all-share offer. Metso refused to even discuss the proposal, even after Weir sweetened the deal by 13 per cent to €4.6bn. Those flowers having wilted, Weir will now slope away. Metso's investors should ask why. Its share price on Wednesday dropped three per cent.

Weir's last effort would have added a third to the undisturbed share price of €23. Not bad, really; hopeful traders had pushed the share price towards one-year highs. Moreover, Liberum believes that cost savings could improve earnings by a fifth, suggesting even greater upside to the combined company. Together Weir's and Metso's high margin after-market services plus the latter's speciality in automation could make a good fit.

Admittedly, the Finnish company has changed a lot since the new year and perhaps needs to find itself. After spinning out its paper business, Valmet, management believes it needs more time to explain the new Metso's strategy. When might management deliver this? Later this summer; again, no dates. Anyway, Metso believes that its key division, mining - three quarters of its profits - has hit bottom, so selling out at current prices would be premature. If true, one should expect a convincingly optimistic outlook for that industry at Metso's next strategy day.

Metso may not know itself yet. Today its shares trade at just under 18 times this year's estimated earnings, in line with most peers, and do not stick out as good value given single-digit earnings growth estimates through 2016. Unless Metso's management can lay out a growth plan for the coming couple of years, it may remain a wallflower for some time.

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