Wood Group’s takeover of Amec pivots on asset buyers

North Sea Oil

27 July 2017. By Andrew Boyce.

Securing regulatory clearance for a merger often hinges on two things: agreeing to sell off assets and finding the right buyer for the hived-off operations.

The second half of that formula could prove a challenge for John Wood Group, the oilfield-services company seeking to acquire North Sea rival Amec Foster Wheeler.

Wood Group says it is prepared to sell the "majority" of Amec's upstream oil and gas business in the UK, hoping this will convince the Competition and Markets Authority to bless the union.

But skeptics note that one conceivable asset purchaser, Petrofac, has come under investigation for suspected bribery and money-laundering offenses. Petrofac is also understood to be a key competitor to Wood Group, meaning the CMA might be reluctant to allow it to buy the operations.

Might this, they ask, spell trouble for Wood Group's plan to purchase Amec in an all-share deal valued at 2.23 billion pounds, or $2.71 billion when it was announced?

A partial answer emerges from a UK competition review of a previous takeover by Wood Group. That investigation identified several rival companies that could, presumably, pick up divested assets. They include Norwegian rival Aker Solutions.

Whether these potential suitors would be willing to buy the assets at the right moment and the right price is another matter altogether.

Wood Group has said that it expects to close the buyout this year. Petrofac, Aker and other companies in the industry declined to comment for this article.

Remedy offer
In May, Wood Group said it had proposed a "remedy" aimed at securing the CMA's approval for the takeover. The offer would involve divesting "the majority of Amec Foster Wheeler's upstream oil and gas business located in the UK".

Aberdeen-based Wood Group said it might have to offer additional remedies but didn't "anticipate having to do so." The offer should be "sufficient," the company said.

Whether the CMA will require any concessions remains to be seen. The watchdog has until Aug. 7 to make an initial decision on the deal.

Both Wood Group and Amec provide services to oil and gas explorers and producers. This "upstream" work sees them designing, building and maintaining offshore oil platforms, for example.

Suitable buyers?

Clues to how Wood Group might view the CMA investigation can be found in a review conducted by the UK regulator's predecessor in 2011.

At the time, Wood Group had agreed to acquire Production Services Network, another oilfield-services provider with operations in the North Sea. In reviewing the takeover, Britain's Office of Fair Trading assessed its impact on competition for upstream services including the engineering, construction and operation of oil and gas facilities.

The OFT's decision to approve the deal says that Wood Group and PSN competed for those services with rivals including Petrofac, Amec and Aker.

Wood Group and PSN argued in that review that they "faced competition" from "a number of suppliers" already operating in the North Sea. That argument was "confirmed" by most of the customers the OFT contacted in its investigation, the decision says.

The merging parties also argued that "smaller competitors" such as Salamis and Altra/OGN could "easily expand" their operations in the North Sea since there were "no capacity constraints or other obstacles" preventing them from doing so.

Wood Group and PSN also argued that expansion by companies operating in other locations was "feasible within a short timeframe" because the resources needed to do so were "readily available."

The OFT decision mentions Aibel and Fabricom in Norway, Stork and Jacobs in the Netherlands, and Worley Parsons in Australia. Wood Group and PSN stated that the costs associated with expansion into the North Sea were generally "low."

All of this suggests that there should be no lack of suitors for Amec's upstream oil and gas business. Whether any of those companies would be interested in purchasing the assets — and at what price — remains to be seen.

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