Tie-up for oil services companies
Wood Group acquires Amec Foster Wheeler in £2.2bn deal
Wood Group says it can achieve “significant additional revenue growth opportunities”. The combined group will be worth £5bn and will seek £110 million of annual savings.
Under the terms proposed each Amec Foster Wheeler Shareholder will receive 0.75 new Wood Group shares.
Based on the closing price of £7.52 per Wood Group share on 10 March the deal is equal to £5.64 per Amec Foster Wheeler share and a 28.7% premium to the 30 trading day average price of £4.53.
Amec Foster Wheeler shareholders will own approximately 44% of the share capital of the combined group.
Robin Watson (pictured) and David Kemp, currently CEO and CFO of Wood Group respectively, will continue as CEO and CFO of the combined group. Ian Marchant will continue as chairman.
Four Amec Foster Wheeler directors will join the board of the combined group, with Roy Franklin joining as deputy chairman and senior independent director.
Mr Marchant said: “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.”
He added that it “extends the scale and scope of our services, deepens our existing customer relationships, facilitates further development of our technology-enabled solutions and broadens our end market, geographic and customer exposure.”
The new company would be an “asset-light business of greater scale and enhanced capability”, he said, diversified across the oil & gas, chemicals, renewables, environment & infrastructure and mining segments.
“By leveraging Amec Foster Wheeler’s and Wood Group’s combined asset life cycle services across project delivery, engineering, modifications, construction, operations, maintenance and consulting activities, the combined group will be able to better capitalise on growth opportunities across a broad cross section of energy and industrial end markets.
“Delivering significant sustainable synergies will also result in a leaner and more competitive combined group, creating value for shareholders.
“The Wood Group board is confident that the combination will build on the individual platforms of Wood Group and Amec Foster Wheeler to the benefit and advantage of customers, employees and other stakeholders.”
The merger has been unanimously recommended by the boards of Wood Group and Amec Foster Wheeler.
John Connolly, chairman of Amec Foster Wheeler said: “Since the arrival of Jonathan Lewis as CEO, the executive management team of Amec Foster Wheeler has made significant progress towards the transformation of the business.
“This has been achieved through cost reduction initiatives, the disposal of non-core assets and a reorganisation of the business. The Amec Foster Wheeler board have fully supported the revised strategy and the preparations to deliver the appropriate balance sheet to support the standalone prospects of Amec Foster Wheeler.
“However, the Amec Foster Wheeler Board believes that a combination with Wood Group adds to the standalone prospects of Amec Foster Wheeler, by accelerating the delivery of the future value inherent in the Amec Foster Wheeler business and, at the same time, helps to realise the full potential of each of Amec Foster Wheeler and Wood Group.
“The all-share structure of the offer allows our shareholders to benefit from the significant synergies and other strategic benefits that are expected to be realised from the combination. Amec Foster Wheeler will also be well represented on the board of the combined group.”
Financial benefits and effects
· The Wood Group directors have identified pre-tax cost synergies that are expected to reach a run rate of at least £110 million, equivalent to approximately US$134 million (using a dollar:sterling exchange rate of 1.2171:1 per annum by the end of the third year following completion of the combination.
· Wood Group estimates that realisation of these synergies would give rise to one-off costs of approximately £190 million (US$231 million) incurred in the first three years post completion.
· The combination is expected to be earnings-accretive on an adjusted EPS basis for both Wood Group and Amec Foster Wheeler in the first full year following completion of the deal and significantly accretive once full run rate synergies are achieved.
· The combined group will have pro-forma net debt of US$1.6 billion, representing 1.9x pro-forma 2016 pre-synergy EBITDA.
· The net debt to EBITDA ratio is expected to trend to the preferred range of 0.5x to 1.5x by the end of the eighteen month period following the effective date.
· After completion of the combination, the board intends to continue to pursue Wood Group’s progressive dividend policy, following on from the total distribution for 2016 of 33.3 US cents per Wood Group share.
· Amec Foster Wheeler Shareholders will not be entitled to any dividend planned, declared, made or paid by Wood Group for the benefit of the Wood Group shareholders prior to the effective date.
· It is intended that the combination will be implemented by means of a court-sanctioned scheme of arrangement