Resources sector engineer AMEC Foster Wheeler (AMFW) is the winner this morning, +15% thanks to a £2.2bn all-share offer from peer Wood Group (WG). This offsets a poor (albeit in-line) set of 2016 results, trading profits hit by lower oil prices weighing on the key Oil & Gas market. The deal appears beneficial for both sets of shareholders – hence a positive reaction by both share prices – providing a life-line for a struggling AMFW and rekindles bullishness in WG as the industry in which both operate adjusts to a new normal of oil prices around the $50/barrel mark.

AMFW shareholders are cheered by a 15% premium that values their shares at levels last seen in mid-to-late October. This was when panic set in about a now avoidable £500m rights issue to bolster a debt-laden balance sheet and dividend suspension. It also provides them with a decent 44% stake in the new group. Income seekers may be left wanting for yield until the deal completes, however, they will at least regain access to dividends in the new group, even if the yield isn’t quite so attractive

Both shareholders look set to profit from £100m annual cost synergies that makes the deal earnings accretive from year one, which should help boost the share prices over time. Today’s deal signals logical consolidation as those that operate in and around the Energy sector exit the toughest of times and aim to enter the new era of lower prices on a stronger footing, able to better weather any future storms.

Mike van Dulken, Head of Research, 13 Mar 2017