Two of the biggest North Sea services players this morning revealed plans to combine.
Wood Group’s and Amec Foster Wheeler’s board of directors have reached an agreement on the terms of a recommended all-share offer by Wood Group to acquire the entire issued and to be issued share capital of Amec Foster Wheeler.
The takeover is worth £2.2billion. The deal will create a company with a combined value of more than £5bn.
Under the deal, each Amec Foster Wheeler Shareholder will receive for each Amec Foster Wheeler Share 0.75 New Wood Group Shares.
The pair have said the deal will save $134million per annum. Of that, 40% is expected to come from operating efficiencies. An addittional 30% is expected to come from corporate efficiencies, including the reduction of duplicate costs across board and executive leadership teams.
Robin Watson and David Kemp, currently CEO and CFO of Wood Group respectively, will continue as CEO and CFO of the combined group. Wood Group’s chairman Ian Marchant will remain the combined group’s chairman.
Four members of the Amec Foster Wheeler Board will join the board of the combined group upon completion of the combination as non-executive directors, with Roy Franklin joining as deputy chairman and senior independent director.
The final 30% is expected to come from administration efficiencies, including the consolidation of overlapping office locations, the elimination of duplicated IT systems and the reduction of duplicate costs across central support functions.
Chairman 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. The Combination 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 Combination will create an asset-light, largely reimbursable business of greater scale and enhanced capability, 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.
Amec Foster Wheeler’s shareholders will become shareholders in the Combined Group, thereby gaining from the enhanced operating capabilities, and benefiting from a share of the synergies, a stronger balance sheet and Wood Group’s progressive dividend policy.
“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 Combination has been unanimously recommended by the boards of Wood Group and Amec Foster Wheeler, and the Wood Group team looks forward to working with the Amec Foster Wheeler team to further develop the Combined Group over the longer term.”
It comes the same day Amec reported a 8% slip in revenue to £5.4billion. Its profit fell from £374m in 2015 to £318million in 2016.
John Connolly, chairman of Amec Foster Wheeler said: “Since the arrival of Jonathan Lewis as CEO, the executive management team 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 Board have fully supported the revised strategy and the preparations to deliver the appropriate balance sheet to support its standalone prospects.
“However, the Board believes that a combination with Wood adds to the standalone prospects of the Company, 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. 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 enlarged group, with four of our directors joining Wood’s board, including Roy Franklin, who will be appointed Deputy Chairman and Senior Independent Director.”
The combination is expected to be completed in the second half of this year.
Wood Group said it believes the combination “represents a compelling opportunity to accelerate the delivery of Wood Group’s strategy to become a global leader in project, engineering and technical services delivery across a broad platform of industrial sectors”.
The firm also said it would afford it the ability to have a “stronger, more diversified platform better able to manage the inherent market and contract volatility that faces the oil and gas industry”.
The combined group will employ 64,000 people globally. It will have a net debt of $1.6billion.
The combination is expected to incur a one-off cost of £190million spread out over the first three years.
In a company announcement Wood Group stated: “The Wood Group Board has, in addition, made the following assumptions, all of which are outside the influence of the Wood Group Board:
• there will be no material impact on the underlying operations of either company or their ability to continue to conduct their businesses;
• there will be no material change to macroeconomic, political, regulatory or legal conditions in the markets or regions in which Wood Group and Amec Foster Wheeler operate that materially impact on the implementation or costs to achieve the proposed cost savings;
• there will be no material change in current foreign exchange rates; and
• there will be no change in tax legislation or tax rates or other legislation or regulation in the countries in which Wood Group and Amec Foster Wheeler operate that could materially impact the ability to achieve any benefits.”
Wood Group was advised by J.P. Morgan Cazenove and Credit Suisse. Amec was advised by Goldman Sachs International, BofA Merrill Lynch and Barclays.
The combination is considered a Class 1 transaction for Wood Group. As such, the combination is conditional and will need final approval from Wood Group’s shareholders at its general meeting.
Wood Group’s board said it considers the “combination to be in the best interests of Wood Group and the Wood Group Shareholders as a whole and intend to recommend unanimously that Wood Group Shareholders vote in favour of the relevant resolutions at the Wood Group General Meeting”.
If approved, Amec Foster Wheeler Shareholders would own approximately 44% of the combined group.