Wood Group in deal to take over Amec Foster Wheeler Published duration 13 March 2017

image copyright Amec Foster Wheeler image caption Amec Foster Wheeler provides services to the Lomond platform in the North Sea

Oil services company Wood Group has reached an agreement to take over rival Amec Foster Wheeler in a £2.2bn deal.

Aberdeen-based Wood Group said the deal would result in "significant cost and revenue synergies" of at least £110m a year.

The cost savings are likely to impact on administrative jobs across the combined group.

Wood Group employs 29,000 people while Amec has 35,000 workers. The new entity would be valued at about £5bn.

Shares in Wood Group rose 6.85% in morning trading, while Amec's shares increased by 17%.

Under the terms of the all share transaction, Amec shareholders would hold 44% of the new entity, with the offer price of 564p representing a 15% premium to Amec's closing share price of 489.2p on Friday.

Wood Group's chairman Ian Marchant said: "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.

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

Shareholders will be asked to vote on the deal, but the boards of both companies have unanimously recommended that it should be approved.

Debt-laden Amec had planned to launch a £500m rights issue to bolster its balance sheet, but those plans have been suspended following the offer from John Wood.

Amec chairman John Connolly said the tie-up supports its "standalone prospects".

If the deal is approved, Robin Watson and David Kemp, currently chief executive and finance boss of Wood Group respectively, will continue in the same roles in the combined entity. Ian Marchant is also set to continue as chairman of the new firm.

From Douglas Fraser, BBC Scotland business and economy editor

Darwinism is at work in Aberdeen, and Wood Group is proving itself to be surviving as one of the fittest.

Its takeover of AMEC Foster Wheeler is one of several large deals in the industry this year, that represent an inevitable stage in the sector's downturn.

The sale of offshore reserves and assets has been a positive sign that money is coming into the sector, with which to move on less efficient assets to those who think they can operate them more efficiently. That is in expectation of an upturn, or at least of the slump bottoming out.

In the oil services sector in which Wood Group operates, those that entered the downturn in 2014 in a weak financial position, with large debts or high costs, have struggled most. AMEC bought Foster Wheeler, a US-listed oil services company, in February 2014.

It seemed a smart move for the British engineering firm to buy into the Foster Wheeler presence in US shale fracking.

As a general rule, it's wise not to buy assets just before the market tanks.

So it left AMEC Foster Wheeler struggling to get its debt under control. It has accepted that its asset disposal strategy wasn't enough to save it from a fitter predator.