Publication Date: May 2, 2017
Wood Group’s all-stock offer presents a life-line for heavily-indebted Amec. The UK engineering and services company recently suspended its dividend, announced a profit warning less than six months ago, cancelled an investor event day to further delay definitive recovery plans, is on the cusp of undertaking a £500m rights issue, and has confirmed expectations of yet another year of oil and gas decline. We see the agreed deal as a rescue takeover, disguised as a merger-of-equals, but with downside heavily skewed against Amec should the transaction fail. This research note evaluates the factors that will most likely influence the risk arbitrage spread over the next months, including analyses on possible counterbidders (for both companies), likely pushback from antitrust regulators as it relates to the combined company’s North Sea dominance of service contracts, and whether the transaction is financially and operationally attractive for Wood Group. UK definitive deals are among the safest globally, which should point to successful completion, but as risk arbitrage funds have recently experienced in Rite Aid (RAD US) and Zodiac Aerospace (ZC FP), public M&A that involves a target that is struggling operationally sometimes inadvertently leads to deal complications, even if the issues are initially unrelated to the target’s operations.
1. Deal Risks and Benefits to Wood Group Shareholders 2. What Influences the Risk Arb Spread? Earnings, Analysts, Speculation 3. What is the Likelihood and Consequence of a Bid for Wood Group? 4. Can the Takeover Fail Due to Antitrust? 5. Timing and Risk Arbitrage Trading Thoughts
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