British engineering company Weir Group has approached Finnish rival Metso over a possible $5 billion combination that would expand its mining business, but Finland's state investment fund said it opposed a takeover.

Weir has proposed an all- share deal in which Metso shareholders would receive 40 per cent of the new company and is offering a 5-10 per cent premium over Metso’s recent share price, a source familiar with the matter told Reuters.

The source said the approach was structured as a merger in which Weir shareholders would end up with most of the combined entity, but the new company’s board would be staffed with both Metso and Weir executives.

The result would be a “stronger Finnish company” and “the proposed structure through an all-share merger will allow existing shareholders to benefit from the huge synergies”, the source said.

But the head of state investment fund Solidium, which owns 11 per cent of Metso, rejected a takeover of Metso, saying it had a bright future as an independent company.

"I don't think this is the right time to sell Metso to Weir Group, or to sell it to anyone," said Solidium managing director Kari Jarvinen.

Metso shares were up 19.43 per cent at €28.34, suggesting investors still believed some kind of deal was possible. Weir was down 0.7 per cent.

One hedge fund investor who closely follows Finnish deals said such a public rebuttal by the state fund appeared to have stopped any deal in its tracks.

A London-based Finnish analyst agreed, saying: “I think it’s quite a strong comment and I’m surprised the market hasn’t reacted to it.

“What the market maybe misses a little bit is that Metso is the backbone of Finnish industries. It has a pretty important supply chain and there is in the investor base a lot of retail investors,” the analyst added.

– (Reuters)