Oil and gas services giant Wood Group has agreed to buy Amec Foster Wheeler in a “transformational” all-share deal that values the rival engineer at more than £2.2 billion.
The tie-up will see Amec’s shareholders owning about 44 per cent of the combined group, which will be worth about £5bn. It is eyeing annual savings of “at least” £110 million a year, although these moves could trigger costs of about £190m in the first three years.
While Wood Group chief executive Robin Watson, who will continue as boss of the enlarged entity, said there would be job cuts as a result of the deal, he told The Scotsman that it would be “inappropriate” to put a figure on the potential losses at this stage.
He added: “We recognise there’s a jobs aspect, but this is about long-term enduring growth. The one thing that creates jobs in this and any other business is that growth platform, so we really do feel confident we’ll have job creation capability with the broader business. To us, this is ultimately about growth and new jobs – and most importantly about high-quality jobs.”
Wood Group, which Watson said has no plans to shift its headquarters away from Aberdeen, has about 29,000 employees, while Amec employs about 36,000 people. The two groups said about 30 per cent of the planned savings would come from cutting back on overlapping offices, IT systems and costs in central functions.
A further 30 per cent will be saved from the reduction of duplicate costs across leadership teams, in addition to other corporate and group functions, with the remaining 40 per cent to come from “economies of scale in addressable operating cost, efficiencies in operational procurement spend and the reduction of duplicate costs across country and regional leadership”.
Under the agreement, investors will receive 0.75 Wood shares for each share they hold in Amec. The deal values Amec’s shares at about 564p, marking a premium of 15.3 per cent on Friday’s closing price.
Wood Group finance chief David Kemp and chairman Ian Marchant will remain in their roles with the combined group. Amec non-executive Roy Franklin will become deputy chairman, with three of his colleagues also joining the board.
Marchant said: “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 deal has been unanimously recommended by the Wood and Amec boards. Debt-laden Amec had planned to launch a £500 million rights issue, but those plans have now been suspended.
Describing the deal as “logical consolidation”, Accendo Markets head of research Mike van Dulken said: “Shareholders look set to profit from £100m annual cost synergies that makes the deal earnings accretive from year one, which should help boost the share prices over time.”