Wood in £2.2bn bid to speed up growth
Aberdeen oil services giant turns tables on rival with takeover move
WOOD Group has made an opportunistic £2.2 billion takeover bid for one of its biggest rivals, Amec Foster Wheeler, which it said will result in job losses but declined to indicate where the axe will fall.
The Aberdeen oil services giant announced the terms of an all share offer for Amec Foster Wheeler that has been recommended by that company’s board.
The deal, which requires approval by shareholders in both firms, would be Wood’s biggest ever.
Wood Group chief executive Robin Watson said it will create a global project engineering and technical services player with big positions in attractive markets.
However the company made clear a big part of the attraction of the takeover was the opportunity it would create to squeeze at least £110 million annual costs out of the enlarged group.
Mr Watson told reporters: “Will there be job losses manifest in the synergies? There will be, we are largely people oriented businesses.”
Asked where jobs would be cut, he added: “It would be inappropriate to put a number to that at this stage. We are very early in our integration planning.”
Mr Watson said Wood Group has no plans to move its headquarters from Aberdeen following the deal.
However, as Wood and AFW have big North Sea operations run from Aberdeen there will be fears the takeover could result in heavy job cuts in the city.
Unite regional officer John Boland said the trade union had concerns about two of the largest employers in the North Sea combining and the implications for jobs in the area.
Wood and AFW have already made big cuts in their North Sea operations in response to the sharp fall in activity amid the crude price plunge which started in 2014.
Wood employs around 7,200 in the UK. AWF did not disclose North Sea employee numbers. It had 4,500 workers in the area last March.
Mr Watson noted the deal would help reduce the company’s reliance on oil and gas work. AFW has big operations in sectors such as environmental and infrastructure engineering.
He said Wood had decided last year that it was well placed to do a sizeable deal after completing a big restructuring.
Wood felt AFW was an attractive business that was facing challenges around financial structuring.
Wood’s chief financial officer David Kemp said there was a “real window of opportunity” in the first quarter in respect of a bid for the firm. He noted AFW had been planning to complete a £500m rights issue and has suspended dividend payments to help strengthen its balance sheet. Wood said AFW’s shareholders should benefit under its progressive dividend policy.
The 12 per cent rise in AFW’s shares yesterday suggested investors liked the look of the deal.
Wood is proposing to offer 0.75 of its shares for every AFW share. Based on the closing price of 752p on Friday for Wood shares this represents a 15.3 per cent premium to the 489p closing price of AFW shares on that day.
Wood shareholders will own 56 per cent of the enlarged group. Mr Watson will be chief executive with Mr Kemp chief financial officer. Wood’s chairman Ian Marchant will chair the group.
North Sea veteran Roy Franklin will become deputy chairman. Three other members of AFW’s board will become non-executive directors. They were not named yesterday.
AFW’s chief executive, Jonathan Lewis, initiated a strategy review after taking charge in June.
His predecessor Samir Brikho masterminded Amec’s £2bn takeover of Foster Wheeler in 2014 then found the crude price plunge take a toll on the enlarged business.
AFW had been seen as a likely bidder for Wood Group.
It said yesterday progress on a £100m cost reduction programme had been offset by ongoing challenging oil and gas market conditions. Chairman John Connolly said combining with Wood Group would add to AWF’s standalone prospects.
Mr Watson said the enlarged group would rely on oil and gas for 60 per cent of its business. Wood earns 80 per cent of its revenues in that market.
Wood’s biggest previous deal was the £630m takeover of PSN in 2010 which increased its exposure to the North Sea.
AFW shares closed up 56.8p at 546p. Shares in Wood Group closed up 10.5p at 762.5p. WOOD Group chief executive Robin Watson was adamant that the £2.2 billion takeover of the Amec Foster Wheeler engineering group it announced yesterday was about growth and not just cost-cutting.
Mr Watson reckons the enlarged group will end up creating jobs as it capitalises on the opportunities to win new business that will be created by combining the two firms’ expertise.
The enlarged group will have big international operations working in areas from helping to develop oil and gas fields to designing nuclear reactors.
But he was frank that jobs will be lost under plans to squeeze £110 million annual costs out of the enlarged business. The fear must be that the companies’ Aberdeen and North Sea operations will have to bear a heavy share of the resulting pain.
Wood identified the closure of overlapping offices and the removal of duplication from back office functions as ways to save money.
Mr Watson also noted employment levels in Aberdeen are related to activity levels in the North Sea, where Wood and AFW have said conditions remain challenging.
Shell’s £37 billion takeover of BG has set a precedent that some people may find worrying. It was followed by the closure of BG’s office in Aberdeen and hefty job losses in the Granite City.
Some may take comfort from the thought the takeover may allow the enlarged Wood Ggroup to use its muscle to get better terms from oil and gas clients.
It may also reduce the chance of Wood Group falling prey itself to a bid.