Engineering house Wood Group has made a US$2.72 billion (£2.22 billion) offer for rival Amec Foster Wheeler in a move that could spark further consolidation in the market.
The takeover bid comes just three years after Amec's 2014, $3.2 billion acquisition of Foster Wheeler, a move described as ill-timed by commentators. The deal, agreed a week before Amec Foster Wheeler was due to raise extra capital, has been agreed by the boards of both companies and is expected to complete in 2H this year.
Oilfield anaysts Rystad said the merger will "create a clear market leader within the engineering and maintenance, modifications and operations (MMO) market, with a market share twice as large as its competitors. With a combined workforce of 64,000, it will rank as one of the top 15 oilfield service companies in the world."
Wood Group believes the move, which saw Amec Foster Wheeler shares jump 20%, will result in significant growth opportunities and "significant sustainable cost synergies of at least £110 million, equivalent to about $134 million a year on a recurring basis, at a one-off cost of about $231 million (£190 million) in the three years post completion.
In 2016, Wood Group had an average 25,500 staff (28,175 in 2015), excluding contractors and joint venture staff, and $4.9 billion revenues ($5.8 billion in 2015). Amec Foster Wheeler says it has about 35,000 staff with $2.8 billion 1H revenues ($2.6 billion in 1H 2015). The firm's full year results are due on 21 March.
Robin Watson (pictured) and David Kemp, currently CEO and CFO of Wood Group respectively, will continue as CEO and CFO of the Combined Group. Ian Marchant will continue as chairman of the combined group.
Watson says: "The combination represents a transformational transaction for Wood Group, which accelerates our strategy and creates a global leader in project, engineering and technical services delivery across a range of industrial sectors. 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.
"The Combination will create an asset-light, largely reimbursable business of greater scale and enhanced capability, diversified across the oil & gas, chemicals, renewables, environment and infrastructure and mining segments.
"By leveraging Amec Foster Wheeler’s and Wood Group’s combined asset life cycle services across project delivery, engineering, modifications, construction, operations, maintenance and consulting activities, the Combined Group will be able to better capitalize on growth opportunities across a broad cross section of energy and industrial end markets."
“The engineering and MMO markets have been very fragmented for a long time, so a market consolidation was not surprising,” says Audun Martinsen, VP of Oilfield Service Research. “Wood Group have previously been active with mergers and acquisitions by acquiring Mustang and Alliance Engineering, Baker Energy and PSN, so it was expected that they would not squander this unique opportunity during a downturn in the market.
“The market outlook will still be challenging for Wood Group and AMECFW, but they should be able to leverage on their size going forward through realized synergies and dominating some markets. Now, it is only time before we expect their competitors to consolidate” adds Martinsen.
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