By Brian Swint
Amec Plc, the second-biggest U.K. oil and gas engineer, agreed to buy U.S.-traded Foster Wheeler AG for $3.2 billion to expand foreign and fuel-product business
The provisional deal will give Foster Wheeler investors $16 in cash and 0.9 of a new Amec share, equivalent to a total $32, for each share they hold, the London-based company said today in a statement. It will seek a U.S. listing after the purchase.
The transaction will boost capacity in the oil products and petrochemicals business at Amec, now mainly focused on helping companies get oil and gas out of the ground. Foster Wheeler has worldwide operations and has been working in Saudi Arabia and the United Arab Emirates since the 1970s, according to its website. Amec is valued at 3.2 billion pounds ($5.3 billion).
“The most important thing this deal is about, if you look at gas prices and monetization, is growing markets in the U.S. and the Middle East,” Chief Executive Officer Samir Brikho said on a call. “This deal enhances our positions in both.”
Amec advanced 2.4 percent, the biggest gain since Nov. 5, to 1,105 pence in London trading. Foster Wheeler climbed 1.1 percent to $31.78 as of 11:19 a.m. in New York.
The takeover will see Amec’s revenue in “growth regions” doubling. Profit will rise at least 10 percent in the first year and returns exceed the cost of capital in the second, it said.
The cash part of the deal will cost about 1 billion pounds, and the company currently has about 100 million pounds of cash, Chief Financial Officer Ian McHoul said on the call. Amec will use current funds and new debt for that portion of the purchase.
Foster Wheeler, based in Zug, Switzerland, had a market value of $3.1 billion at the end of last week after gaining 25 percent in the fourth quarter, when talks with Amec and Petrofac Ltd., the largest U.K. oil services provider, were reported.
Amec’s offer represents a 0.6 percent premium over the 20-day average price, compared with a 32 percent premium for global oil and gas services deals in the past year, according to data compiled by Bloomberg.
“The fact that there is no real premium offered to shareholders is not really surprising as takeover rumors made the round already,” said Geoffroy Stern, a Kepler Cheuvreux analyst in Paris. “We do not believe in a counter bid from any competitor as Foster Wheeler has been for sale for a while.”
Amec expects to close the deal, subject to conditions, in the second half. Foster Wheeler, which would take two seats on the U.K. board, agreed not to seek out other offers before Feb. 22, when agreement on the final terms is expected, Amec said.
The engineer’s offer of as much as 680 million pounds in August for Kentz Corp., to expand its energy construction and services business, was rejected by the Irish company.
Amec also said today the pound’s climb against the dollar will curb its earnings before interest, tax, depreciation and amortization this year by about 10 million pounds. Gains from Foster Wheeler won’t be fully realized this year so Amec won’t meet targeted earnings per share of 100 pence in 2014, it said.
Bank of America-Merrill Lynch and Linklaters LLP advised Amec on the deal, while JPMorgan Chase & Co. advised Foster Wheeler.
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