Oil services firm John Wood Group PLC (LON:WG.) has raised the level of possible cost savings from its agreed £2.2bn merger with contractor Amec Foster Wheeler PLC (LON:AMFW) by £40mln.
In a statement, the FTSE 250-listed group said that after “further ongoing analysis” it now sees annual pre-tax cost synergies of at least £150mln by the end of the third year after completion of the deal, up from a previous estimate of £110mln.
Wood Group added it was also "confident of realising additional cost synergies that cannot be quantified for reporting at this time".
In early morning trading, Wood Group shares gained 2.2%, or 17p at 778p, while AMFW shares were also up 2.2%, or 11.5p at 544.5p.
READ: Wood Group launches agreed offer for AMFW …
The firm estimated that the synergies would lead to one-off costs of about £190mln in the first three years post-completion.
Wood said half the extra cost cuts would come from "efficiencies in operational procurement spend and the reduction of duplicate costs across country and regional leadership".
It added that a further 20% was forecast from duplicate costs across the board and senior management and the rest from the consolidation of overlapping office locations, the elimination of duplicated IT systems and the reduction of duplicate costs across central support functions.
The form launched the takeover bid for AMFW on March 15, offering 0.75 new Wood Group shares, which, based on its closing share price on the previous Friday of 752p, represented a 15.3% premium to AMFW's closing price that day.
The takeover will result in AMFW’s shareholders owning approximately 44% of the combined group’s share capital.
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.
In a note published on March 22, Jefferies analyst Mark Wilson said he wasn’t convinced by the takeover move and downgraded his rating for Wood Group to ‘underperform’.
READ: Jefferies not convinced with Wood Group move …
Wilson said he agreed with the gearing target put forward by Wood, but, reckoned there’s a progressive dividend risk that existed with Amec’s prior merger with Foster-Wheeler.
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