Caterpillar Inc. CAT has entered into an agreement with Weir Group PLC to acquire its Oil & Gas business for a cash price of $405 million. The buyout will expand Caterpillar’s offerings in the oil & gas market. Notably, the acquisition includes more than 40 Weir Oil & Gas manufacturing and services locations, and nearly 2,000 employees.

Based in Scotland, Weir Group is a global engineering company. Its Oil & Gas Division produces pumps, consumable parts, flow iron, wellhead and pressure control products. It provides pressure pumping, pressure control and after-market services to upstream oil and gas customers in North America and worldwide. This February, Weir Group announced its intention to divest the Oil & Gas division in line with its focus to become a mining technology pure play. Together, Weir Oil & Gas’ pressure pumping and pressure control portfolio and Caterpillar’s engines and transmissions will enable the latter to create additional customer value. Moreover, the buyout supports Caterpillar’s commitment to invest for long-term growth through operational excellence as well as expanded offerings.

Caterpillar’s Energy & Transportation segment is bearing the brunt of bleak demand in the oil and gas sector on account of low oil prices and sluggish capital spending at customers end. Global retail sales in the segment declined 16% during the three-month period ended August 2020. The segment has been contracting for 11 consecutive months. Moreover, the company’s global retail sales slipped 20% in August amid weak demand due to the pandemic. Considering the uncertainty of the duration of the coronavirus pandemic and its overall impact on all sectors, Caterpillar’s sales are likely to continue bearing the impact until the situation stabilizes.

The company did not provide any guidance with the second-quarter results and stated that its financial results for the remainder of 2020 will bear the

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Weir made its major entry into the North American oil-and-gas sector in 2007, purchasing SPM Flow Control as oil prices were approaching their zenith.


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Weir Group

will exit the hydrocarbon industry by selling its oil-and-gas division to

Caterpillar

for $405 million, leaving the Scottish engineer to focus on its core mining business.

The sale is part of a strategic transformation by

Weir

as the oil-and-gas sector remains in a rut. Shares in the Glasgow-based group soared as much as 25% in London trading.

The back story. FTSE 250 constituent Weir made its major entry into North American oil and gas in 2007, purchasing SPM Flow Control as oil prices were approaching their zenith. In 2014, the division accounted for around half of the company’s profits.

In February the company took a £546 million ($707 million) write-down on the division amid a downturn in the North American industry, and it said it planned to “maximize value” from the business to focus purely on mining.

Weir’s announcement that it intended to leave the oil-and-gas sector came as climate change was putting increasing pressure on the industry, but before the coronavirus pandemic caused demand to drop dramatically. Oil supermajor

BP

said in February it planned to be net zero by 2050, and

Royal Dutch Shell

has since followed suit.

Plus:Royal Dutch Shell to Cut up to 9,000 Jobs as Oil Slump Accelerates Green Energy Drive.

What’s new. Caterpillar, a Fortune 100 equipment manufacturing giant, will purchase Weir’s Texas-based division, which includes more than 40 locations and around 2,000 employees. The business primarily makes pumps and other drilling equipment. Weir said that the sale, expected to complete before the end of the year, will bring the company a $70 million cash tax benefit in the U.S.

Weir shareholders must

Adds details on the deal

Oct 5 (Reuters)Weir Group Plc WEIR.L said on Monday it had agreed to sell its oil and gas division to U.S. heavy equipment maker Caterpillar Inc CAT.N for $405 million in cash, as the engineering company focuses on its mining business.

The deal, which follows a collapse in global oil prices and a swathe of sectoral bankruptcies, will have a $70 million U.S. cash tax benefit for Weir, and the net proceeds from the deal will reduce the group’s leverage, the company said.

The transaction includes Weir’s North American and international oil and gas operations, comprising its Pressure Pumping and Pressure Control business units, and associated after-market spares among other things.

Weir Group Chief Executive Officer Jon Stanton called the move a major milestone in transforming the group into a focused, premium mining technology business.

The company said the deal, which is expected to close by the end of the year, would help it strengthen its balance sheet to enable future investments.

Weir said its oil and gas business had gross assets of 747.4 million pounds ($966.61 million) as of June 30.

($1 = 0.7732 pounds)

(Reporting by Aakash Jagadeesh Babu in Bengaluru; Editing by Vinay Dwivedi)

(([email protected]; Twitter: @JagadeeshAakash;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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