Wood Group to Buy Amec Foster Wheeler

21.03.2017 -

Oilfield chemicals major Wood Group, based in Aberdeen, Scotland, has made a £2.2 billion all-share offer to acquire US rival Amec Foster Wheeler. The bid represents a 15% premium to the US company’s closing share price. %. The merger would create a £5 billion enterprise.

After the dust had settled on the announcement, the targeted companies’ shares were up 11%.

The US firm’s board said it believes a combination with Wood would add to its standalone prospects by accelerating the delivery of the future value inherent in its business while also helping to realize the full potential of each company. The all-share structure of the offer allows its shareholders – who will receive a 0.75 cut of a new Wood Group share for each existing share held – to benefit from the significant synergies and other strategic benefits, Amec Foster Wheeler said.

According to analysts, the proposed deal, announced shortly before Amec planned to suspend dividend payments and pitch a £500m rights issue to shareholders in an effort to avoid defaulting on loans, is a further step toward consolidation in the industry, which has been hit hard by oil producers’ reduced spending.

Recent M&A activity has seen General Electric make a bid to merge its oilfield-services arm with Baker Hughes. On average, reports said, the oil services industry has suffered a 30% drop in revenues over the past two years.

Both Wood Group and Amec Foster Wheeler are global players, but the US firm is regarded as having a broader client base. The UK group is said to still rely on oil companies for around 85% of its revenues, Amec to only around 60%, thanks to a strong pipeline of projects in environment and infrastructure projects.

Amec nevertheless has been staggering under a £1 billion debt burden stemming from the 2014 takeover of Foster Wheeler for nearly three times that sum – just before the oil price collapsed.  At the end of December 2016, the British business newspaper Financial Times reported, Amec Foster Wheeler’s ratio of net debt to adjusted annual earnings was 3.3 times.

For Ian Marchant, Wood Group’s chairman, this will be “a transformational transaction,” extending the scale and scope of the Scotland-based player’s services by diversifying its activities across the oil and gas, chemicals, renewables, environment and infrastructure and mining segments. His company also was hit squarely by the oil price crash, which shaved pretax earnings for 2016 to $66 billion from $138 million in 2015, despite a 25% cut in the workforce to save nearly $100 million in overheads. 

The merged group will have pro-forma net debt of $1.6bn, nearly twice annual earnings, before expected synergies estimated at upwards of £110 million per year, kick in. Wood Group said the debt ratio is expected to be reduced to 0.5-1.5 times 18 months after completion of the deal, which must be approved by regulatory authorities in six countries. It is thought likely to come under intense scrutiny in the UK, due to concern among rivals about the market power a combined group would wield in the North Sea.