Wood Group takes over rival Amec Foster Wheeler as engineering firms forced to get leaner and more competitive
Aberdeen-based Wood Group announced the takeover of UK engineering firm Amec Foster Wheeler for US$2.7 billion (or £2.2 billion) in an all-stock deal. Amec shareholders will receive 0.75 "new" Wood Group shares, a premium of almost 30% to the previous day's close.
Wood Group says it sees significant opportunities for "revenue synergies" across the two companies which should result in annualized savings of US$134 million. However, the company warned its shareholders it will need to take a one-time impairment charge of US$231 million sometime in the next three years.
Wood Group Chairman Ian Marchant says the combined company will be "leaner and more competitive."
The news is somewhat surprising given that Amec is technically the larger company, with more employees, more offices and higher sales. However, the company has been under considerable pressure in recent years to reduce its debt-load and improve its shrinking margins.
Amec's fiscal troubles began in January 2014 when it purchased Foster Wheeler for US$3.2 billion (or £1.9 billion). The deal included a cash payment of £1 billion, most of which Amec was forced to borrow from debt markets. Oil prices have since crashed from nearly US$100 a barrel, drying up capital spending in the energy patch. Long-time CEO Samir Brikho, who led the acquisition, was removed from his post last year.
Things haven't been much better over at Wood Group. The company's profits were cut in half last year, forcing the engineering firm to destaff 18% of its employees. Wood Group's revenues are more focused in the declining North Sea basin. This recent acquisition will help it gain a stronger foothold in the growing US shale production and more international plays in general.
The merger has been approved by the boards of both companies. Robin Watson, current Wood Group CEO, will remain as CEO of the newly combined company. Amec's executives are no where to be found on the new senior executive leadership team.
Once the merger is complete, 60% of the combined company's revenues will come from the oil and gas sector. The new Wood Group will employ 64,000 people worldwide, 36,000 of which will come from Amec.
The deal is subject to regulatory approval and expected to close in the second half of this year.
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