Wood Group To Acquire Amec In $2.7-billion All-share Deal

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The boards of Amec Foster Wheeler and Wood Group are pleased to announce that they have reached agreement on the terms of a recommended all-share offer by Wood Group to acquire the entire issued and to be issued share capital of Amec Foster Wheeler (the “Combination” to form the “Combined Group”).

Summary

  • Under the terms of the Combination, each Amec Foster Wheeler Shareholder will receive:
  • for each Amec Foster Wheeler Share:      0.75 New Wood Group Shares
  • Based on the Closing Price of £7.52 per Wood Group Share on 10 March 2017 (being the last Business Day before the date of this Announcement), the terms of the Combination represent:
  • a value of approximately £5.64 per Amec Foster Wheeler Share; and
  • a premium of approximately:
  • 28.7 per cent. to the prior 30 trading day volume weighted average price of £4.53 per Amec Foster Wheeler Share as at 10 March 2017, based on a prior 30 trading day volume weighted average price of £7.77 per Wood Group Share as at 10 March 2017 (being the last Business Day before the date of this Announcement); and
  • 15.3 per cent. to the Closing Price of £4.89 per Amec Foster Wheeler Share on 10 March 2017 (being the last Business Day before the date of this Announcement).
  • Based on the Closing Price of £7.52 per Wood Group Share on 10 March 2017, the terms of the Combination value the issued and to be issued share capital of Amec Foster Wheeler at approximately £2,225 million.

The Combination will result in Amec Foster Wheeler Shareholders owning approximately 44 per cent. of the share capital of the Combined Group (based on the existing ordinary issued share capital of Wood Group and the fully diluted share capital of Amec Foster Wheeler) and sharing in the benefits accruing to the Combined Group via the realisation of significant cost and revenue synergies.

Opportunities for cost and revenue synergies have been identified which support the significant shareholder value creation opportunity of the Combination. The Wood Group Directors, having reviewed and analysed the potential cost synergies of the Combination, based on their experience of operating in the engineering and technical services industry, and taking into account the factors they can influence, believe that the Combined Group will be able to achieve significant sustainable cost synergies of at least £110 million, equivalent to approximately US$134 million (using a dollar:sterling exchange rate of 1.2171:1 as set out in the Bases and Sources at Appendix 2 to this Announcement), per annum on a recurring basis.

The Wood Group Directors also believe that significant additional revenue growth opportunities may be realised by the Combined Group as a result of the Combination.

Robin Watson and David Kemp, currently CEO and CFO of Wood Group respectively, will continue as CEO and CFO of the Combined Group.  Ian Marchant will continue as Chairman of the Combined Group.

Four members of the Amec Foster Wheeler Board will join the board of the Combined Group upon completion of the Combination as non-executive directors, with Roy Franklin joining as Deputy Chairman and Senior Independent Director.

Commenting on today’s announcement, Ian Marchant, the Chairman of Wood Group 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 Combination extends the scale and scope of our services, deepens our existing customer relationships, facilitates further development of our technology-enabled solutions and broadens our end market, geographic and customer exposure.

The Combination will create an asset-light, largely reimbursable business of greater scale and enhanced capability, diversified across the oil & gas, chemicals, renewables, environment & infrastructure and mining segments.

By leveraging Amec Foster Wheeler’s and Wood Group’s combined asset life cycle services across project delivery, engineering, modifications, construction, operations, maintenance and consulting activities, the Combined Group will be able to better capitalise on growth opportunities across a broad cross section of energy and industrial end markets.

Delivering significant sustainable synergies will also result in a leaner and more competitive Combined Group, creating value for shareholders.

Amec Foster Wheeler’s shareholders will become shareholders in the Combined Group, thereby gaining from the enhanced operating capabilities, and benefiting from a share of the synergies, a stronger balance sheet and Wood Group’s progressive dividend policy.

The Wood Group Board is confident that the Combination will build on the individual platforms of Wood Group and Amec Foster Wheeler to the benefit and advantage of customers, employees and other stakeholders.

The Combination has been unanimously recommended by the boards of Wood Group and Amec Foster Wheeler, and the Wood Group team looks forward to working with the Amec Foster Wheeler team to further develop the Combined Group over the longer term.”

Commenting on the Combination, John Connolly, the Chairman of Amec Foster Wheeler said:

“Since the arrival of Jonathan Lewis as CEO, the executive management team of Amec Foster Wheeler has made significant progress towards the transformation of the business. This has been achieved through cost reduction initiatives, the disposal of non-core assets and a reorganisation of the business. The Amec Foster Wheeler Board have fully supported the revised strategy and the preparations to deliver the appropriate balance sheet to support the standalone prospects of Amec Foster Wheeler.

However, the Amec Foster Wheeler Board believes that a combination with Wood Group adds to the standalone prospects of Amec Foster Wheeler, by accelerating the delivery of the future value inherent in the Amec Foster Wheeler business and, at the same time, helps to realise the full potential of each of Amec Foster Wheeler and Wood Group. The all-share structure of the offer allows our shareholders to benefit from the significant synergies and other strategic benefits that are expected to be realised from the Combination.  Amec Foster Wheeler will also be well represented on the board of the Combined Group, with four of our directors joining the Combined Group’s board, including Roy Franklin, who will be appointed Deputy Chairman and Senior Independent Director.”

Financial benefits and effects

The Wood Group Directors have identified pre-tax cost synergies that are expected to reach a run rate of at least £110 million, equivalent to approximately US$134 million (using a dollar:sterling exchange rate of 1.2171:1 as set out in the Bases and Sources of Appendix 2 to this Announcement), per annum by the end of the third year following completion of the Combination.

Wood Group estimates that realisation of these synergies would give rise to one-off costs of approximately £190 million (US$231 million) incurred in the first three years post completion.

The Combination is expected to be earnings-accretive on an adjusted EPS basis for both Wood Group and Amec Foster Wheeler in the first full year following completion of the Combination and significantly accretive once full run rate synergies are achieved.[1]

The Combined Group will have pro-forma net debt of US$1.6 billion, representing 1.9x pro-forma 2016 pre-synergy EBITDA.

The net debt to EBITDA ratio is expected to trend to the preferred range of 0.5x to 1.5x by the end of the eighteen month period following the Effective Date.

After completion of the Combination, the board of the Combined Group intends to continue to pursue Wood Group’s progressive dividend policy, following on from the total distribution for 2016 of 33.3 US cents per Wood Group Share.

Amec Foster Wheeler Shareholders will not be entitled to any dividend planned, declared, made or paid by Wood Group for the benefit of the Wood Group Shareholders prior to the Effective Date.

Combination details

It is intended that the Combination will be implemented by means of a court-sanctioned scheme of arrangement of Amec Foster Wheeler under Part 26 of the Companies Act 2006, further details of which are contained in the full text of this Announcement.  However, Wood Group reserves the right to implement the Combination by way of an Offer, subject to the Panel’s consent and the terms of the Co-operation Agreement.

The Amec Foster Wheeler Directors, who have been so advised by Goldman Sachs International, BofA Merrill Lynch and Barclays as to the financial terms of the Combination, consider the terms of the Combination to be fair and reasonable. In addition, the Amec Foster Wheeler Directors consider the terms of the Combination to be in the best interests of Amec Foster Wheeler and the Amec Foster Wheeler Shareholders as a whole. In providing its financial advice to the Amec Foster Wheeler Directors, each of Goldman Sachs International, BofA Merrill Lynch and Barclays has taken into account the commercial assessments of the Amec Foster Wheeler Directors.  Accordingly, the Amec Foster Wheeler Directors intend to recommend unanimously that Amec Foster Wheeler Shareholders vote, at the Amec Foster Wheeler General Meeting and the Court Meeting, in favour of such resolutions as are necessary to approve, implement and give effect to the Scheme, as those Amec Foster Wheeler Directors who hold Amec Foster Wheeler Shares have irrevocably undertaken to do in respect of their entire beneficial holdings of, in aggregate, 543,175 Amec Foster Wheeler Shares representing approximately 0.1 per cent. of Amec Foster Wheeler’s issued share capital on 10 March 2017, being the last Business Day before the date of this Announcement.

The Combination constitutes a Class 1 transaction for Wood Group for the purposes of the Listing Rules.  Accordingly, the Combination will be conditional on the approval of the Wood Group Shareholders at the Wood Group General Meeting.

The Wood Group Directors consider the Combination to be in the best interests of Wood Group and the Wood Group Shareholders as a whole and intend to recommend unanimously that Wood Group Shareholders vote in favour of the Wood Group Resolutions at the Wood Group General Meeting which will be convened in connection with the Combination, as those Wood Group Directors who hold Wood Group Shares have irrevocably undertaken to do in respect of their entire beneficial holdings of, in aggregate, 205,276 Wood Group Shares, representing approximately 0.1 per cent. of Wood Group’s issued share capital on 10 March 2017, being the last Business Day before the date of this Announcement.

The Wood Group Directors have received financial advice from J.P. Morgan Cazenove and Credit Suisse in relation to the Combination.  In providing their advice to the Wood Group Directors, J.P. Morgan Cazenove and Credit Suisse have relied upon the Wood Group Directors’ commercial assessments of the Combination.

The Combination is subject to, inter alia, the receipt of the relevant clearances from competition authorities in Australia, Canada, Kazakhstan, Turkey, and the United Kingdom and the US, in addition to certain foreign investment and other approvals including under the CFIUS regime in the US.  In addition, the Combination may be subject to national security review in Canada and in the United Kingdom (whether by the Secretary of State for Defence, the Secretary of State for Business, Enterprise, Innovation and Skills or otherwise).  There will be other formal regulatory approval and notification requirements in a number of jurisdictions, in respect of which communications will be opened in due course.  The Combination is also subject to such other conditions as are set out in paragraph 8 of and Appendix 1 to this Announcement, and to the full terms and conditions which will be set out in the Scheme Document.

The Scheme Document will contain further information about the Combination and notices of the Court Meeting and Amec Foster Wheeler General Meeting.  It is expected that the Scheme Document, including the Scheme and notices of the Amec Foster Wheeler Meetings, will be posted to Amec Foster Wheeler Shareholders and, for information purposes only, to persons with information rights and to holders of options and awards granted under the Amec Foster Wheeler Share Plans, together with Forms of Proxy, in accordance with a timetable agreed between Amec Foster Wheeler and Wood Group from time to time, such that the Court Meeting and the Amec Foster Wheeler General Meeting shall be convened for not later than 15 June 2017 (or such other date as may be agreed by Amec Foster Wheeler and Wood Group).  The Scheme Document will be made available by Wood Group on its website at www.woodgroup.com and by Amec Foster Wheeler on its website at www.amecfw.com.  For the purposes of paragraph 3(a) of Appendix 7 to the City Code, the Panel has consented to an extension of the applicable date for posting.

It is expected that the Prospectus, containing information about the New Wood Group Shares, will be published at or around the same time as the Scheme Document is posted to Amec Foster Wheeler Shareholders.  It is also expected that the Circular, containing details of the Combination and notice of the Wood Group General Meeting, will be posted to Wood Group Shareholders at or around the same time as the Scheme Document is posted to Amec Foster Wheeler Shareholders, such that the Wood Group General Meeting will be held at or around the same time and on the same date as the Court Meeting and/or the Amec Foster Wheeler General Meeting and not later than 15 June 2017 (or such other date as may be agreed by Amec Foster Wheeler and Wood Group).  The Prospectus and the Circular will each be made available by Wood Group on its website at www.woodgroup.com and by Amec Foster Wheeler on its website at www.amecfw.com.

The Combination is expected to become effective in the second half of 2017, subject to satisfaction or (where applicable) waiver of the Conditions and certain further terms set out in Appendix 1 to this Announcement.

This summary should be read in conjunction with, and is subject to, the following full Announcement and the Appendices.

The Combination will be subject to, inter alia, the Conditions and further terms set out in Appendix 1 to this Announcement and to the full terms and conditions which will be set out in the Scheme Document. Appendix 2 to this Announcement contains bases of calculations and sources of certain information contained in this Announcement. Details of irrevocable undertakings received by Amec Foster Wheeler and Wood Group are set out in Appendix 3 to this Announcement.  Appendix 4 to this Announcement contain details of and bases of calculation of the anticipated quantified financial benefits of the Combination, together with the related reports from Wood Group’s reporting accountants, PwC, and Wood Group’s financial advisers, J.P. Morgan Cazenove and Credit Suisse as required under Rule 28.1(a) of the City Code. Each of PwC, J.P. Morgan Cazenove and Credit Suisse has given and not withdrawn its consent to the publication of its report in this Announcement in the form and context in which it is included.  Certain terms used in this summary and this Announcement are defined in Appendix 5 to the full Announcement.

For the purpose of Rule 28 of the City Code, the Quantified Financial Benefits Statement contained in Part A of Appendix 4 to this Announcement is the responsibility of Wood Group and the Wood Group Directors and not of the Amec Foster Wheeler Directors.  Any statement of intention, belief or expectation for the Combined Group following the Effective Date is an intention, belief or expectation of the Wood Group Directors and not of the Amec Foster Wheeler Directors.

For more information, please visit: www.woodgroup.com

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