Wood Group launches Amec takeover move

UK contractor hopes $2.7 billion bid for Amec Foster Wheeler will be ‘transformational’ with new company keeping oil and gas portfolio at around 60% — but cuts and job losses will follow

UK CONTRACTOR Wood Group has launched a $2.7 billion recommended takeover bid for compatriot Amec Foster Wheeler (AmecFW).

It expects the move to be “transformational” for an enlarged company that will look to retain its main focus on the oil and gas sector.

The all-shares deal announced this week will create what one analyst called “a dominant player in a fragmented market”, with Wood Group adding fresh strings to its bow via new sectors and signalling possible expansion in the North American unconventionals market.

Under the deal, which values AmecFW at £2.225 billion ($2.7 billion), shareholders in the target company will receive 0.75 shares in Wood Group for each of their own shares held, leaving the combined player owned 54% by Aberdeen-based Wood Group.

Wood Group chief executive Robin Watson, chief financial officer David Kemp and chairman Ian Marchant will all keep their positions in the new company, with AmecFW to get four directors on the board — with one being AmecFW director Roy Franklin.

Watson said in an investor briefing that the company spent the fourth quarter looking for a larger merger and acquisition deal that would be “transformational” for Wood Group, settling on AmecFW due to its varied portfolio but still significant interest in oil and gas.

Wood Group’s own portfolio has moved from 95% oil and gas two years ago to around 85% today, with the combined company set to be about 60% focused on the upstream sector. Market capitalisation will be around £4.8 billion. The two companies currently have a combined workforce of 64,000, with AmecFW the larger at 35,000.

However, job losses are already earmarked, as is the amalgamation of offices in mutual locations.

“We don’t see any challenges in terms of the cultural alignment of the two businesses,” Watson said, adding: “We are confident we will integrate the business (and) we will integrate it smoothly.”

The new company will incur one-off costs of around £190 million in the first three years, but synergies between the two businesses are set to lead to cost cuts of some £110 million per year by the end of the third year.

Watson said three main areas have been identified for cost cutting, with cuts to corporate spending to contribute about 30% of the savings, cuts to administrative functions also chipping in around 30% and operational synergies (encompassing elements like procurement speed and economies of scale) contributing 40%.

Apart from AmecFW’s presence in oil and gas, Wood Group will add sectors such as environment and infrastructure as well as mining consultancy through the purchase. However, oil and gas will remain the core focus.

“Having a 60% oil and gas portfolio is a good position for us to be in,” Watson said.

Watson also hinted that the North American shale market may be targeted by the combined company. He said AmecFW’s current engineering and construction footprint in the US Lower 48 is “very impressive”, adding: “And our shale footprint is very impressive.”

Norwegian research firm Rystad Energy said the merger “will create a clear market leader within the engineering and the maintenance, modifications and operations market,” with the new Wood Group having twice the market share as nearest rival TechnipFMC. The deal will also make it one of the top 15 oilfield services companies globally, it added.

“Now, it is only (a matter of) time before we expect their competitors to consolidate,” Rystad’s vice president of oilfield service research, Audun Martinsen, said.

•• WOOD Group chief executive Robin Watson is confident the company will overcome any antitrust hurdles it will face as a result of its takeover offer for Amec Foster Wheeler.

The two companies each have a large presence in the North Sea market, particularly in terms of their maintenance and dutyholder roles.

“This is about global capability — (although) we do have significant overlap in the North Sea... we are confident that the merits of the overall deal are not compromised by the North Sea situation in any way,” said Watson.