Aberdeen-based oil and gas-field services provider is to take over sector rival Amec Foster Wheeler in an agreed £2.2 billion deal.
The deal has been driven by the continuing slump in profitability and lack of new investment by the major oil exploration companies following the huge slump in N. Sea crude oil prices since Summer 2014.
Wood Group is offering 564p a share on the deal and shares in both companies rose on the announcement; Amec shares leapt forward by 14.7% to 561p while Wood’s shares rose 4.4% to 785p.
The newly-merged company will continue to known as the Wood Group, who chief executive Robin Watson, finance chief David Kemp and chairman Ian Marchant will stay in their roles following completion of the deal.
Four members of the Amec Foster Wheeler Board will join the board of the Combined Group as non-executive directors, with Roy Franklin joining as Deputy Chairman and Senior Independent Director
Philip Barker, partner and head of industrials at Cavendish Corporate Finance, commented: “This is a significant transaction which comes at a time of continued oil price volatility and will bring together two of the UK’s largest energy services companies to create one of the biggest oil-services companies in Europe.
“The £2.2 billion deal will create a company with a combined value of about £5 billion, providing greater scale and enhanced capability as both companies search for sustainable cost synergies.
“Continued weakness in the oil and gas market was partly responsible for a fall in profit by both companies, which have been looking for ways to increase savings.
“The transaction will provide important benefits for both groups, which will be able cut costs up to £110 million, diversify their offering, cross-sell to the wider client base and become more competitive.”
Last year, Amec revenues fell 8% to £5.4 billion after “continuing weakness” in the oil and gas market offset strong performances elsewhere in its business. That weakness was also partly responsible for a £56 million slide in profit to £318 million.
Last month, Wood Group reported a 60% slump in profits – despite cutting its workforce by 20%.
Today, Ian Marchant, Chairman of Wood Group said: “The combination with AFW 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.”