- Fresh 35p cash offer
- Possible $450 million cash injection
- Wood to succumb to ‘sorry end’
Wood Group’s (WG.) shares rallied 11.5% to 27.9p on the news Dubai-based rival Sidara has returned to the table with a £242 million conditional offer for the indebted energy services business less than a year after walking away from a £1.5 billion bid.
Pitched at 35p per share in cash, the fresh offer is 85% below the 230p price discussed by Sidara last year before it pulled the plug on a deal, placing the blame on ‘rising geopolitical risks and financial market uncertainty’.
Shares in Wood Group recently traded at all-time lows after it was forced to delay results as an independent probe found key financial information had been withheld from auditors.
This was expected to result in material adjustments to previous financial statements and its balance sheet, but the latest in a litany of disasters does not seem to have dissuaded erstwhile suitor Sidara, which has put forward a 35p per share proposal.
CAPITAL INJECTION
Aberdeen-headquartered Wood Group said it would be ‘minded to recommend’ the deal, one that would include a much-needed $450 million (£342 million) million capital injection from Sidara, to shareholders should a firm offer be forthcoming from its UAE-based suitor.
Sidara has made ‘significant progress’ with its due diligence on the oil services-to-engineering business, including in relation to its review of the points raised in a recent independent review commissioned by Wood Group.
Wood Group said that work continues on a range of alternative refinancing options, but the board currently believes that the possible offer from Sidara ‘represents the better option for Wood’s shareholders, creditors and other stakeholders’.
ATTRACTIVE PROPOSITION
Wood Group stressed that merging the two companies would create ‘a leading global engineering consulting company with enhanced scale, capability and diversification. By bringing together Wood’s deep domain experience with Sidara’s specialist strengths in Energy & Materials, the combined business would be well-positioned to lead and grow in these attractive global markets.’
AJ Bell investment director Russ Mould remarked that Wood Group was once a big success story in the UK energy industry, but it now looks set to ‘succumb to a pretty sorry end, although shareholders may be only too willing to draw a line at this point given the company’s recent struggles.’
A SORRY END
Mould said Sidara’s 35p per share proposal ‘feels very small beer compared with the 230p on the table before Sidara walked away from a deal last summer but beggars cannot be choosers and such is Wood Group’s perilous position it has little choice but to accept what is on offer, particularly given Sidara is pitching a potential capital injection as part of the agreement.
‘Wood Group rather forlornly says it is looking at alternative refinancing options but the fact it is minded to recommend a firm offer if it is forthcoming is telling. The whole saga is a reminder that so-called “transformational” acquisitions more often destroy than create value as Wood Group’s problems can largely be traced back to its combination with Amec Foster Wheeler in 2017.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
