Hurdles facing bids for Foster Wheeler

UK ENERGY services groups Amec and Petrofac would face major financial hurdles if they made an acquisitive move for the American energy services group Foster Wheeler, City analysts claim.
Petrofacs Libyan operation could count against it. Picture: GettyPetrofacs Libyan operation could count against it. Picture: Getty
Petrofacs Libyan operation could count against it. Picture: Getty

It is reported that Amec is stalking Foster Wheeler, but that, although informal talks have been held between the two companies, there are no current active discussions.

Petrofac, which has a strong presence in the Aberdeen-based oil industry, has also been mooted as a possible suitor for Foster Wheeler, the British company seen as keen on leading consolidation in the sector.

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None of the three companies would comment yesterday, but analysts highlighted the difficulties of a deal.

Alex Brooks, energy services analyst with broker Cannacord Genuity, said it was only weeks ago that Amec walked away from a $900m (£700m) takeover approach for Kentz in the sector.

“Amec was not able to buy Kentz for $900m and now they are supposed to be looking at Foster Wheeler, a group valued at just under $3 billion,” Brooks said.

“Amec only has about $1bn in cash, so if you paid a premium for Foster Wheeler, you could be looking at Amec having to raise well over $2bn from shareholders.

“I don’t think there is a hope in hell of its shareholders possibly supporting that.”

There have been suggestions that Amec might pay for Foster Wheeler with a mixture of cash and shares. But many analysts are sceptical big American investors would welcome that structure for a deal.

“American shareholders would want cash, not shares in a London listed business,” one analyst commented.

It is thought Petrofac would also need to raise substantial cash to gatecrash any Amec/Foster Wheeler party. In addition, it is believed Petrofac’s management are not keen on a transformational, though risky, sector consolidation.

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One City source said: “Petrofac are more about bolt-on acquisitions, not major strategic moves. The fact that its share price virtually didn’t move today following the latest speculation shows the City doesn’t believe it is seriously interested in making a bid for Foster. Keeping tabs on the situation is a different thing entirely.”

Another difficulty facing any Petrofac move on Foster Wheeler, which has a strong exposure to the Scottish oil and gas industry, is believed to be its lack of a US presence and strong exposure to some volatile Middle Eastern states.

Brooks at Cannacord commented: “There is more logic with Amec and Foster Wheeler because Amec already has a strong presence in the US, including contracts with the US department of defence.

“But Petrofac has no business in America. It also has a big Middle East business, having done work in the likes of Libya and Syria. That would attract scrutiny from US regulatory bodies if the company took over a major US energy services player.”

It has been reported that Goldman Sachs have been appointed by Amec to advise on any potential deal.

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