Wood Group agreed a £2.2bn ($3bn) all-share takeover offer today for its rival Amec Foster Wheeler in a deal that brings together two of the largest energy services companies in the UK.

The agreement will create a company with a combined value of more than £5bn.

“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,” said Wood Group chairman Ian Marchant.

Delivering significant sustainable synergies will also result in a leaner and more competitive combined group, creating value for shareholders.”

Shares in Amec Foster Wheeler, a UK engineering consultancy, jumped 15 percent to 563p in response to the news, while Wood Group‘s shares increased by five percent to 790p.

Amec’s shareholders will own 44 percent of the newly enlarged Wood Group.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

The takeover announcement comes just a week after Amec announced plans to raise £500m through a rights issue and suspend dividend payments to tackle its £1bn of debt.

Oil prices began their slide from $115 a barrel in mid-2014 to as low as $27 last year. Many companies reliant on the oil and gas industry have struggled.

Last year, Amec’s revenues fell 8 percent to £5.4bn after “continuing weakness” in the oil and gas market. That weakness was also partly responsible for a £56m slide in profit to £318m. Last year, the company was forced to lay off about 18 percent of its employees.

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,” said John Connolly, chairman of Amec.

According to Wood Group, the combined business will result in savings of £110m per year.

The combined company will  have a broader portfolio of services, not only enhancing services within oil and gas, but expanding into other sectors of oil and gas and also into power generation, mining, and other infrastructure projects.  This breadth will give Wood Group options to seek growth should a negative market continue for longer in oil and gas and offers revenue stream diversification,” Matthew Jurecky, head of oil & gas consulting at research firm GlobalData told Verdict.

“External factors such as these will partly shape how successful the merger will have been, but realizing significant value quickly through cost synergies will prove decisive.  Sharing overhead across the much larger portfolio of revenue streams should improve margins in a way that either company individually could not achieve,” he added.