John Wood Group agreed to acquire Amec Foster Wheeler in an all-share deal that values the UK engineering-service provider at about £2.23 billion.
The takeover comes after several years of pressure on profits for service providers in the energy industry as the slide in oil prices forced clients to rein in spending and defer large projects. By merging, these engineering companies aim to cut costs, diversify and become more competitive. Among recent deals, General Electric agreed in October to merge its oilfield-services arm with Baker Hughes.
“Wood Group becomes a larger, more diversified and higher-scale business in terms of global presence,” said James Hubbard, a London-based analyst with Numis Securities. “The implicit price is 10 times consensus estimate earnings for this year for Amec. That’s bang in line for historic trading average and most would say that’s a perfectly reasonable price to pay.”
Amec shareholders will receive 0.75 new Wood Group shares for each Amec share they hold, Wood Group said Monday. Based on the March 10 closing price, the terms of the acquisition represent a premium of almost 29 per cent to the 30-day average, according to a statement.
Wood Group shares rose as much as 8 per cent and were 5.5 per cent higher at 793.5 pence as of 10:10am in London. Amec jumped as much as 23 per cent, the most in more than 20 years.
The takeover will create a company with a market value of about $6bn, making it among the biggest oil-services companies in Europe, ahead of Saipem and Petrofac. The deal is expected to grow adjusted earnings per share in the first full year, according to the statement.
“The combination represents a transformational transaction for Wood Group, which accelerates our strategy and creates a global leader in project, engineering and technical services delivery across a range of industrial sectors,” said Wood Group chairman Ian Marchant, who will retain that position in the combined group.
Robin Watson and David Kemp, chief executive officer and chief financial officer of Wood Group respectively, will also remain in these roles. Four members of Amec’s board will join the new board.
Wood Group put pretax cost synergies at a “run rate” of at least £110 million a year by the end of the third year after completion.
The acquisition has been unanimously recommended by the boards of both companies. It is expected to become effective in the second half of 2017. The deal will also have to be approved by competition authorities including those in Australia, Canada, Kazakhstan, Turkey, the UK and the US, according to the statement.
Wood Group’s full-year sales and profit both missed analyst estimates with revenue dropping 16 per cent to $4.93bn and net income tumbling 65 per cent to $27.8m. Mr Watson said last month challenges will persist this year.
Still, the company said then it’s seeing “early signs of improvement” in its core US onshore market, particularly in the Permian Basin that spans Texas and New Mexico. By contrast, the UK North Sea, where Wood Group got almost 40 per cent of its revenue two years ago, now accounts for just 20 per cent, he said.
* Bloomberg
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