Wood Group agrees to buy Amec Foster Wheeler for £2.2bn

Wood Group has agreed a £2.2bn all-share takeover offer for its struggling rival Amec Foster Wheeler in a deal that highlights the pressure on the UK North Sea oil industry from weak crude prices.

Oilfield services companies have taken an axe to costs over the last two and a half years as low energy prices have prompted oil and gas producing clients to reduce expenditure and ask for price cuts on existing contracts.

Wood Group and Amec, which provides services to infrastructure and renewable energy projects as well as the oil industry, would have combined revenues of more than $12.3bn. Ian Marchant, chairman of Wood Group, said the deal would create a “global leader” in project, engineering and technical services across a range of sectors. 

However, analysts said merging the two companies would raise concerns about job losses and reduced competition in the North Sea.

"A combined company could dominate around a third of operations and maintenance contracts in the UK North Sea sector alone, based on historical awards,” said Infield Systems, a consultancy. 

Robin Watson, chief executive of Aberdeen-based Wood Group, acknowledged the two companies had a significant overlap in the North Sea, but told analysts: “We are confident that the merits of the overall deal are not compromised by the North Sea situation.” 

Wood Group has promised synergies of “at least” £110m a year — at a one-off cost of £190m — through steps such as closing offices and cutting roles where there is duplication. 

Employment in the UK North Sea has dropped by a quarter since 2013 to 330,400, according to Oil & Gas UK, a trade body.

“This certainly will devastate Aberdeen further. There will be extensive job losses on the back of this as they realise synergies,” said Ashley Kelty, analyst at Cenkos Securities.

Wood Group may also have to sell operations in the North Sea to alleviate any competitions concerns, one person close to the deal said.

Consolidation among oilfield services companies is more advanced in the US. Halliburton made a $28bn offer for rival Baker Hughes in 2014 but walked away last year after antitrust authorities moved to block the deal. Baker Hughes subsequently agreed a deal to combine with General Electric’s oil and gas unit.

Although activity has picked up in the US shale industry, oilfield services companies have been bracing themselves for more cuts in spending elsewhere this year by global oil and gas companies.

Wood Group has offered 0.75 of new shares for each Amec Foster Wheeler share. The deal, which has been recommended by the board of Amec, values each of its shares at £5.64 — a premium of 15.3 per cent to the closing share price on Friday.

The takeover bid comes just over a week before Amec had been due to launch a £500m rights issue and suspend dividend payments to tackle its £1bn of debt and ensure it had enough headroom to avoid a breach of its lending covenants.

The group has also been struggling to recover from an ill-timed takeover in 2014, when UK-based Amec bought Foster Wheeler of the US in a cash and shares deal worth $3bn.

Amec’s shareholders will own 44 per cent of the enlarged Wood Group. If the deal gets approval, Mr Watson will continue in his role, as will David Kemp, Wood Group’s finance director.

Amec Foster Wheeler was advised by Goldman Sachs, Bank of America Merrill Lynch and Barclays. Wood Group was advised by JPMorgan Cazenove and Credit Suisse.