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Weir Group cuts off ties with its broker

WEIR Group has parted company with corporate broker Bank of America Merrill Lynch (BAML) after finding out the adviser had forged links with a rival.

CHANGE: Weir, led by Keith Cochrane (left), split with BAML over links with IMI, run by Mark Selway (above).
CHANGE: Weir, led by Keith Cochrane (left), split with BAML over links with IMI, run by Mark Selway (above).

The Glasgow engineering firm said it was forced to act following a "new and undisclosed" conflict of interest relating to BAML being appointed as a broker at another company.

However it emerged that BAML's new client is Birmingham-based engineer IMI. That business is a competitor of Weir and is headed by Mark Selway, the Scottish firm's former chief executive.

IMI was also touted as a potential takeover target for Weir in the immediate aftermath of the failure to agree a deal with Finnish company Metso in May.

BAML was actually the lead adviser on the ambitious approach for Metso which would have seen the creation of a £9 billion company with market leading positions in a number of areas.

Weir, headed by chief executive Keith Cochrane, is understood to have found out about BAML's appointment by IMI through a third-party.

Typically investment banks will consult clients before taking new mandates within a sector to ensure there is no conflict of interest.

Part of Weir's concern is thought likely to be around IMI's valves business which competes in a similar space to Weir's industrial and power division.

The English company is also looking to extend its oil and gas operations in a sector where Weir already has a big presence particularly in shale across the United States.

The board of Weir, which is thought to have been happy with BAML's work since it was appointed in 2011, met to discuss what to do about the issue before voting to terminate the relationship.

It is understood Weir felt there was a clear potential for a conflict of interest if BAML was allowed to advise both companies.

One industry source suggested an area of concern was around potential acquisition targets and whether BAML would bring those to Weir or IMI first.

However a separate source said there is a perception that Weir and IMI are operating in different segments of the engineering worldwhich is why BAML is likely to havefelt there was not a conflict of interest. That source also indicated due diligence to identify any potential conflicts is undertaken before a broker takes on a new client and there was no suggestion the process was not followed in this case.

It therefore appears unlikely that IMI felt there was a conflict with BAML also acting for Weir.

However the Scottish company clearly felt the situation could not be allowed to continue and released a terse statement to the stock exchange yesterday which said: "The Weir Group has terminated its joint corporate broker engagement with Bank of America Merrill Lynch following the recent emergence of a new and undisclosed conflict of interest arising from its engagement as broker by another company."

Investment banks are usually employed by large listed companies to offer advice on a range of issues including relationships with investors. The brokers are often then employed when the businesses embark on merger and acquisition activity.

Yesterday neither IMI or BAML wanted to offer any comment.

Mr Selway, an Australian who was at Weir between 2001 and 2009, joined IMI in September last year and formally became chief executive in January. IMI saw revenue in the first six months of the year dip three per cent from £831 million to £809 million with underlying pre-tax profits down five per cent from £134 million to £127 million.

BAML is now listed on the IMI website as one of its corporate brokers alongside JP Morgan Cazenove. For the time being Weir's sole corporate broker will be UBS although the company intends to appoint a second broker in due course.

Weir Group's recent half-year results showed a 10 per cent uplift in orders to £1.24 billion. However revenue fell five per cent to £1.14 billion with underlying pre-tax profit down six per cent to £183 million as the company felt the effects of the strong pound on foreign currency exchange rates and the impact of prolonged mining strikes in Africa.

Weir's shares closed down 36p, or 1.4 per cent, at 2525p yesterday.

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