* Deal set to be completed in second half of 2014
* Amec says will help more than double revenues in growth
* Acquisition would end drought of big deals in sector
By Brenda Goh
LONDON, Jan 13 British oil and gas engineering
firm Amec has agreed to buy Swiss-based rival Foster
Wheeler for 1.9 billion pounds ($3.13 billion), the
first sizeable acquisition in the sector for three years.
Amec said the deal would help more than double revenues in
growing markets such as Latin America and the Middle East.
The firm, which provides services and equipment for the oil
and gas, mining, nuclear and renewable energy sectors, also said
the acquisition would add oil and gas transport and refining
capabilities to its existing extraction facilities.
The deal, expected to be completed in the second half of
this year, will end a drought of major transactions in a sector
where targets' high growth forecasts have fuelled shareholders'
expectations of big takeover premiums, making it difficult for
firms to agree on price.
Amec's 680 million pound approach for British peer Kentz
was rejected by Kentz's board last August, who said the
bid undervalued the firm.
Bankers told Reuters in December that the sector's last
sizeable deal was Wood Group's takeover of PSN for just
under $1 billion three years ago.
Larger European contractors, which have amassed large cash
reserves thanks to years of rapid growth, are hungry for such
acquisitions which they believe would help them to expand into
new regions such as Africa and newer specialisms such as
liquefied natural gas (LNG) and shale.
Amec expects a 10 percent boost in earnings in the first 12
months after the acquisition, with returns on its investment to
exceed the cost of capital in the second year.
The firm, which generates the bulk of its revenues in the
Americas and Europe, said the deal would also create annual cost
savings of at least $75 million.
Foster Wheeler provides engineering services and power
generator equipment to the LNG, oil and gas and petrochemical
sectors. The deal values it at about 10 times enterprise value
to earnings, compared to a sector average of 8.1 times,
according to Reuters calculations.
CASH AND SHARES
Media reports last year suggested that Foster Wheeler was
the target of a bid battle between Amec and oil services group
Petrofac. A source close to Petrofac told Reuters at the
time that the company was not interested.
Under the Amec offer terms, Foster Wheeler shareholders will
receive approximately 0.9 Amec shares and $16 in cash,
representing $32 for each Foster Wheeler share.
That is an 11 percent premium to the $28.73 the Swiss
engineer's shares closed at on Nov. 26, the day before the first
media reports of Amec's interest.
"It would seem to be a price that is fair to both the buyer
and the seller," Credit Suisse analyst David Thomas said.
"In terms of value for the Foster Wheeler shareholder it
seems to be good value ... From the Amec point of view clearly
it's very strategically sound, it has a good logic."
Shares in Foster Wheeler, which are listed on the Nasdaq and
have risen by 18 percent over the last three months, were
trading up 1 percent at $31.78 at 1540 GMT.
Foster Wheeler will hold shares in Amec after the deal's
completion representing 23 percent of the enlarged company, and
Amec will seek a U.S. listing in connection with the
transaction, the companies said.
Foster Wheeler said it had agreed with Amec not to solicit
alternative proposals up to Feb. 22, and would pay out a
one-time dividend of $0.40 per share before closing a deal.
Amec is being advised by Bank of America Merrill Lynch
, while Foster Wheeler is being advised by Goldman Sachs
and JP Morgan.
Amec said it had performed in line with expectations for
2013 but that less favourable exchange rates for 2014 compared
with 2013 would reduce its core earnings by 10 million pounds,
year on year. It said it now does not expect to report adjusted
earnings per share of more than 100 pence in 2014.
Shares in Amec opened 2.4 percent down at 1057 pence after
it unveiled the deal, but recovered to trade 1.76 percent up at
1098 pence at 1244 GMT, against a 0.3 percent fall in the
European oil and gas index, valuing the firm at 3.2