Oilfield support services group John Wood Group PLC (LON:WG.) has launched an around £2.225bn recommended all-share offer for engineering contractor Amec Foster Wheeler PLC (LON:AMFW), which revealed that it has suspended plans for a £500mln cash call as a result.
Under the deal, AMFW shareholders will receive 0.75 new Wood Group shares, which, based on Friday’s Wood Group closing price of 752p, represents a 15.3% premium to AMFW's closing price that day, and a 28.7% premium to the prior 30 trading day’s average price.
In reaction, AMFW shares soared nearly 18% higher, up 86.8p to 576.0p, while Wood Group shares gained over 7%, or 55.5p at 807.5p.
The takeover will result in AMFW’s shareholders owning approximately 44% of the combined group’s share capital.
Wood Group said it has identified “significant sustainable cost synergies” of at least £110mln per annum on a recurring basis from the combination of the two firms.
The firm added that it estimates that realisation of these synergies would give rise to one-off costs of approximately £190mln in the first three years after completion.
It said believes that significant additional revenue growth opportunities may be realised by the combined group.
Earnings accretive …
The firm said the combination is expected to be earnings-accretive on an adjusted EPS basis for both Wood Group and AMFW in the first full year following completion.
All Wood Group’s top management will retain their roles within the combined group, with Robin Watson to be CEO, David Kemp CFO, and Ian Marchant to continue as chairman.
Marchant said: “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.”
Four members of AMFW’s board will join the board of the combined group as non-executive directors, with Roy Franklin to be deputy chairman.
John Connolly, AMFW chairman said “the Amec Foster Wheeler Board believes that a combination with Wood Group adds to the standalone prospects of Amec Foster Wheeler, 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 Group.”
Trading tough …
Separately, AMFW also delivered a trading update today – and news of a £125mln nuclear contract with EDF Energy – saying its unaudited full year 2016 results are “broadly in line with market expectations.”
The group said its revenue in 2016 was £5.440bn, down 8% on a like-for-like basis, as a strong performance in solar and E&I (Environment and Infrastructure) was offset by continuing weakness in the oil and gas market, while its trading profit fell to £318mln, down from £374mln in 2015.
In its statement, AMFW added: “In 2017, we continue to expect another year of oil and gas decline and for solar activity to reduce significantly from the record levels in 2016.”
The group also revealed that it had been preparing to imminently launch a rights issue of around £500mln, preparations for which have now been suspended, and it has also decided to suspend all dividend payments, including any final payout for 2016.
The firm has also initiated an increase to the covenant on its debt facilities to enable continued compliance, as the planned proceeds of the disposal of its nuclear business are now expected in the third-quarter of 2017.
Amec Foster Wheeler’s CEO Jonathan Lewis – who only took up the role on June 1 2016 - announced the initial conclusions of a strategy review of the under-pressure contractor in October last year, which would reduce the firm’s cost base by around £100mln per annum by 2019.
Wood Group has said its calculated synergies from the takeover are separate to those cost-savings.