Finland's state-owned investment company has backtracked over its opposition to Weir Group's bid for engineering company Metso, as business leaders warned the country's reputation as an open economy was at stake.
The Scottish engineering giant last week launched an ambitious bid to take over the Helsinki mining, construction and oil and gas firm, which operates in 50 countries.
The offer received an immediate rebuff, led by Solidium, a state-owned holding company with an 11% stake in Metso. Solidium's mission is described on its website as being "to strengthen and stabilise Finnish ownership in nationally important companies and increase the value of its holdings in the long run".
In response to the bid, Solidium's managing director Kari Jarvinen said: "Metso has an excellent path in front of it as an independent company so I don't think this is the right time to sell Metso to Weir Group, or to sell it to anyone." He was also quoted as saying Metso should instead concentrate on "exploring possibilities" to effect takeovers of its own.
However, in an interview with the Sunday Herald two days later, Jarvinen appeared to reverse this position, denying that "Solidium had issued any opinion on any specific bid regarding Metso".
He added: "Our comments should not be interpreted as a direct response to any potential bid, as we have not been able to analyse the financial or strategic merits of any potential bid. Solidium has expressed its views on Metso at a general level only."
The Weir Group's launch of an all-share merger with its Finnish rival, whose strengths in areas such as rock-crushing are seen as complementary and therefore unlikely to invoke competition challenges, would make it the dominant partner by virtue of a market value 50% above Metso's undisturbed share price.
If successful, it would transform the Glasgow company, which last week declared its opposition to Scottish independence, into an £8.5 billion global engineering giant.
The bid is backed by Weir's second-biggest investor Aberdeen Asset Management, whose fund manager James Laing is quoted as saying the deal would "provide decent synergies from a cost and revenues perspective" and that "using stock significantly de-risks the deal".
Metso's pulp and paper machine division was recently spun out into a separate entity, a development seen by analysts as making the company more attractive to potential buyers.
Solidium's immediate hostility to Weir's bid, apparently before Metso's board had time to consider the details, has raised eyebrows in Finnish business circles. One Helsinki industrialist, who asked not to be named, described the state body's objection as political, relating it to the economic malaise of the 5.4 million population country, heightened by tensions with its newly assertive neighbour Russia. Economists expect the Finnish economy to grow by only 1% in 2013-14, while unemployment is as high as 9%.
The source said: "Solidium's intervention is very explicit and political, which is interesting. When economies are doing badly there is a fear that companies are valued at too low a level and are vulnerable to buyouts. That's when people begin to worry about their jobs.
"Political pressures are building on the government to take a more active role by the owner, and it's a fair question whether single market rules allow that."
Leena Jaakkola, director of the Confederation of Finnish Industries, declined to comment specifically on Metso, a member company, but said: "Finland is a small, open economy and it doesn't really have a choice but to stay open. In general, one should not scrutinise where a new owner comes from as long as they are a good owner and have a good strategy.
"We in Finland need to discuss these things openly and stress the key principles as to why a small country with a small economy such as Finland should never resort to turning inwards, as it doesn't make sense in the long run."
Solidum told the Sunday Herald that its intervention over Metso was related to its hopes "to increase the value of its holdings in the company" rather than "to strengthen and stabilise Finnish ownership in nationally important companies".
Under the terms of the Treaty on the Functioning of the EU, member states are barred from putting obstacles in the way of cross-border deals.
A spokesman for the European Commission told the Sunday Herald: "EU treaty rules on the free movement of capital do not allow member states to artificially block investments in privately owned companies. It can be a problem under EU law if, for example, a minority state shareholding allows the state to exert disproportionate influence over the company."
A spokesman for Weir Group said: "We've made our proposal and the ball is in their park. It's up to the board of Metso to consider it in any way they feel is right."