Both Wood Group and Amec Foster Wheeler have assured shareholders that their proposed £2.2 billion merger will continue as planned – despite the UK Competition Commission flagging up a free-market concern.
The Competition Commission has warned that the merger could reduce market competition in the supply of offshore North Sea oil and gas services.
And it ordered the two supply-chain giants to come up with a solution by next Wednesday (9 Aug 2017) or face an in-depth investigation from the Competition Commission.
Kate Collyer, the CMA’s deputy chief economic adviser, said: “We have consulted widely on the implications of this merger and it is clear that Wood Group and Amec Foster Wheeler have a particularly strong market position in the supply of key services to the upstream offshore oil and gas sector in the UK.
“The merger would, therefore, remove the rivalry between two of the four main suppliers of these services.
“Based on our initial investigation, this could significantly reduce customers’ ability to obtain competitive bids, which could lead to increased prices and affect the competitiveness of the oil and gas industry in the UK.”
In a statement, Aberdeen-based Wood Group said it had been “working constructively” with the CMA to “progress consideration” of a remedy offer it put forward in May.
It added: “Wood Group will now formally submit the remedy proposal to the CMA. The CMA will provisionally decide whether this remedy proposal is sufficient by 16 August 2017 at the latest, with its final decision due by 11 October 2017.
It added: “Both Wood Group and Amec Foster Wheeler consider that the proposed remedy is sufficient to address the CMA’s competition concerns and to obtain clearance <for the merger>.
“As a result, Wood Group and Amec Foster Wheeler continue to expect the combination to complete in the fourth quarter of 2017.”
Robin Watson, Chief Executive of Wood Group, added: “Both sets of shareholders overwhelmingly support the proposed combination and we continue to believe that the proposed remedy will be sufficient to obtain clearance from the CMA.
Jon Lewis, Chief Executive at Amec Foster Wheeler, said “Since the announcement of the remedy offer in May, we have made good progress marketing our UK upstream oil and gas business to a range of potential buyers and are continuing the divestment process.
“We remain committed to closing the transaction in quarter four this year.”
Meanwhile, the oil-to-renewables Wood Group will be drawn into the nuclear energy sector when its merger with Amec completes.
Last week, Amec Foster Wheeler landed a £2.9 million contract from the UK government to lead a “key” research programme that aims to use developments in digital technology to optimise the next generation of nuclear reactors.
The energy services firm – formed from the merger of Amec and Foster Wheeler in 2014 and currently in the process of being bought by peer John Wood Group – will set up and run a UK Digital Reactor Design partnership that will use virtual engineering and high-performance computing to enhance the techniques used to design reactors and optimise their performance.
The contract was awarded by the Department for Business, Energy & Industrial Strategy, which also recently awarded Amec Foster Wheeler a contract to carry out research into manufacturing and materials technologies for the civil nuclear sector.
Amec Foster Wheeler only last month made the decision to retain its European nuclear business after consulting John Wood Group.