SNC-Lavalin said to be in hunt for Wood Group
An analyst with Dundee Capital Markets says he hopes rumours are unfounded that SNCLavalin Group Inc. is considering the purchase of John Wood Group PLC, a multinational oil and gas ser vices company headquartered in Aberdeen, U.K.
Analyst Maxim Sytchev says that even though investing in oil and gas as WTI c r ude falls below US$ 30 a barrel is a sound long- term strategy, it’s not one that would endear SNC investors even with $ 1.4 billion in cash and the 407 on the monetization block.
“Doubling down on energy is not something that shareholders would appreciate,” said Sytchev in a research note. “We think that investors would view the potential allocation to such a transaction as misallocation of capital.”
The London-based Financial Times reported Wednesday that, according to someone familiar with the companies, the Montrealbased engineering and construction giant was weighing up a bid Wood Group at up to £ 3- billion ($ 6.21 billion), though no formal approach has been made and there is no certainty one ever will be.
SNC’s stock fell nearly five per cent from a high of $ 39.99 on the TSX Wednesday to a low of $ 38.12 on Thursday at noon, though it did start to climb in the afternoon, closing at $ 39.07 on the day.
Meanwhile, Wo o d Group’s stock gained about 2.5 per cent since Wednesday, closing at £ 568.50 on Thursday.
Sytchev says he would see this transaction in a negative light because it is a departure from the company’s projected intentions to scale up its water and infrastructure engineering business.
“While it is not a very high- growth market, it is much more steady than the commodity exposed verticals,” Sytchev said.
SNC acquired the Kentz Corp Ltd. oil and gas, petrochemical and mining engineering company for $ 2.1 billion in June 2014, when oil still sold for US$ 115 a barrel.
The leader of that transaction was Neil Bruce, who replaced Robert Card as CEO of SNC- Lavalin l ast November.
Bruce, who j oined the company in January 2013, is credited for helping transform the company’s oil and gas business from a niche 3,000- employee division into a 20,000- strong organization.
SNC spokesman LouisAntoine Paquin could not confirm whether the company is considering a bid for Wood Group, telling the Financial Post that it is company policy not to comment on rumours.
“As a public company, we would inform markets if a material change occurs,” he said.
Before the Kentz acquisition, Sytchev had suggested the Houston, Texasheadquartered Wood Group Mustang division as a potential fit for SNC, but did not assume the entire Wood Group company would be in play.
“Simply put, the entire entity is too big for SNC,” he said.