Wood group shareholders in line for £1bn windfall on sale

Published on Sunday 13 February 2011 20:41

SHAREHOLDERS in Wood Group are in line for a £1 billion-plus cash windfall after it struck a deal yesterday to sell off a third of its business in a move which also sparked fresh takeover speculation.

The sale of its well support division to General Electric for some 1.75bn - a much higher figure than it was expected to realise - means investors are likely to receive at least 1.80 a share from the deal.

Founder and chairman Sir Ian Wood stands to gain at least 50 million from the payout based on his stake of 5.2 per cent. The wider Wood family, along with a charitable trust which mainly works in Africa but also across Scotland, will share a further 100m under the planned payout.

Shares in Aberdeen-based Wood Group soared by 13.9 per cent on the news to close at a record high of 652p, valuing the company at almost 3.5bn. Sir Ian described the deal as a "win win" for both sides, enabling the well services division to have a strong future with a global leader in the well services sector and allowing his company to focus on its core areas of engineering and production support along with gas turbine services.

The well support division employs some 3,800 staff and has its headquarters in Houston, Texas.

The deal announcement also led to a wave of merger and acquisition speculation across the sector with the likes of Glasgow-based Weir Group - being touted as a possible target for German giant Siemens - and oil services group Petrofac seeing strong gains in their share prices. Wood Group's chief executive Allister Langlands said as well as the return of capital to shareholders, the company would use some of the funds to pay for its purchase of North-east-based oil production services company PSN which it agreed to buy for 600m in December.

He also said that the company will look to make more acquisitions, although there was nothing on the immediate horizon.

"We'd like to expand our engineering business in Brazil and we'd like to grow our brownfield support business in Canada so those will be two areas that we continue to look at," said Langlands.

Analysts were taken by surprise by the price achieved by Wood Group and said it was certain to lead to speculation over more deals in the sector as well as around the company itself.

Royal Bank of Canada analyst Todd Scholl said: "We definitely think they got an attractive price. It was considerably more than what we were expecting.

"I would expect that, based on this valuation, all of the oilfield services stocks would trade higher. The space certainly is very hot from an M&A perspective. Andrew Dobbing, an analyst at JP Morgan Cazenove, said the disposal of the well support business would help Wood Group focus on its remaining areas of maintaining existing oilfields for production companies and enjoy "clearer market leadership".

The disposal of the division is also seen as making Wood Group more attractive to a larger predator.

Keith Morris, an analyst at brokerage Evolution, said that with the cyclical recovery seen as lasting for a couple of years it would be better for a potential acquirer to look to buy now than later when the price would be higher.

General Electric said the acquisition of the division would allow it to tap demand for oil recovery from mature oil fields. John Krenicki, chief executive of GE Energy, said: "Five years ago, drilling and production in GE did not exist. Over the last five years we've built it up to be an industry leader."