Weir gets Esco in $1.28B deal

Ground engaging tools (GET) specialist Esco Corporation is being bought by Weir Group (LSE: WEIR) for $US1.285 billion in a cash and scrip deal.

Noel Dyson*

The deal is part of Weir Group's focus on positioning itself as a mining services provider with mission critical market offerings from extraction to concentration.

To better align with this approach, Weir will also be selling its Flow Control division, which makes valves. It wants to focus its portfolio on highly abrasive after-market applications in minerals and oil and gas.

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Esco is a 105-year-old family business that manufactures highly engineered GET used primarily in surface mining. Its core products include the Nemisys lip system and the Ultralok mining tooth system. The installed base of Esco GETs is said to include more than 3,000 used on large mining machines.

One of the drivers for the deal was that Esco shared Weir's "razor-razor blade" aftermarket-focused business model. Aftermarket sales make up about 90% of Esco's revenues because the tools are usually used in highly abrasive conditions, meaning frequent replacements are needed.

Esco chairman and CEO Cal Collins called the deal a merger, even though Weir is referring to it as an acquisition.

"The foundation of our business for more than 100 years has been delivering value-added solutions to customers through a proud tradition of quality and customer-driven innovation," he said.

Esco used to be represented in Australia by Bradken. However, that licensing agreement ended in 2011. By then Esco was already well established, having set up Esco Holdings in Brisbane in 2009 and buying the service engineering and mining products divisions of Swift Group in 2010.

Weir Group CEO Jon Stanton said together with Esco it would create a unique customer proposition as the "premium provider of mission critical surface mining solutions from extraction to concentration, built on proprietary technology, superior wear life and supported by an unrivalled service network".

"We are acquiring a high quality business at the right time with the market in the early stages of its recovery, providing opportunities for long-term growth," he said.

"Weir will be a focused premium brand business with leading technology, increased scale, an improved mix of mining and oil and gas markets, higher aftermarket sales and financial strength to invest in growth."

Under the deal Esco shareholders will get 59% of the consideration in cash with rest coming in new Weir shares.

The deal is expected to be completed in the third quarter of 2018 with integration starting in 2019.

Weir Group shares were up 6.2% early today at £22.53, capitalising the company at £5.05 billion.

*Noel Dyson is editor of www.miningmonthly.com