Wood Group has launched a bid to take over fellow oilfield services firm AMEC Foster Wheeler in a move that could save the merged group GBP110 million (US$134 million) per year in costs.
The offer, of 0.75 new Wood Group shares for each existing AMEC share, was announced on March 13, and has been recommended by the company’s board. This announcement comes days before London-headquartered AMEC was due to suspend dividend payments and carry out a GBP500 million (US$611 million) rights issue in order to boost its struggling balance sheet.
"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," said Wood Group chairman Ian Marchant. "Delivering significant sustainable synergies will also result in a leaner and more competitive combined group, creating value for shareholders."
AMEC Foster Wheeler currently has GBP1 billion (US$1.2 billion) of debt, and has faced considerable difficulties since it was formed in a merger between US contractor Foster Wheeler and UK services operator AMEC three years ago. This came as the collapse in oil prices hit services companies hard, with numerous contracts renegotiated and new projects cancelled.
The takeover bid may have been prompted by a stabalising of oil prices, which have steadied at around US$52-US$56 per barrel. While there has been an appetite for cost saving in the current environment, this volatility could have led to disputes over asset valuations.
In a note to clients, Citigroup described the takeover "as a largely defensive deal given what remains a challenging environment for oil and gas activity".
"We also believe Wood Group sees the opportunity to simplify AMFW’s organisation, cut costs and position the business to benefit from a recovery in its key end-markets," it continued.
"WG has identified cost synergies of at least GBP110 million [US$134 million] per annum going forwards (c.18% of the combined group’s 2016 EBITA), aided by the overlap of operations in the UK North Sea."