Amec's $3.2 Billion Acquisition of Foster Wheeler Fits Complementary Markets, Strengths

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--The provisional agreement for Amec (LSE:AMEC.L) (London, England) to buy Foster Wheeler (NASDAQ:FWLT) (Baar, Switzerland) for $3.2 billion has come as a surprise to some industry observers, although a contact between the two companies has been known of for at least a year. The surprise comes from the deal's price (some thought it on the high side) and the fact that the iconic Foster Wheeler is to be swallowed by its British rival. Overall, the acquisition is expected to create an impressive player with strong synergies at a high level.

The engineering and project management groups are considered a "good fit." Sam Brikho, Amec's chief executive, said the merger will add Foster Wheeler's midstream and downstream capacities to Amec's existing upstream capabilities and will bring in new customers. Foster Wheeler traditionally has a strong core in the refining and processing part of the oil and gas sector, whereas Amec has major strengths in exploration and production.

The merger presents a good, complementary geographical fit, adding to Amec's North American and European market presence. Foster Wheeler's strong profile in Saudi Arabia, Qatar and Oman will boost Amec's business reach, as will expanding business in Thailand, India and China, where Foster Wheeler has 900 staff. Foster Wheeler also has experience in Canada's shale-gas sector.

Under the provisional agreement, Foster Wheeler will not solicit proposals from any alternative bidders until February 22. Pre-conditions of the deal include due diligence, debt financing, and a unanimous recommendation by the Foster Wheeler board, which will nominate two non-executive directors to the Amec board. Foster Wheeler will hold shares representing 23% of the merged company, and Amec will seek a U.S. listing.

Amec said that it expects a 10% boost in earnings in the first 12 months following the acquisition and cost-savings of about $100 million, mainly from the rationalization of office staffing.

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