Foster Wheeler AG (FWLT) recently signed a definitive sell-off agreement with its rival AMEC plc. Following the announcement, the company’s share prices increased by 1.8% on the day (Feb 13).
As per the agreement, AMEC will be entailed to acquire all the issued and to be issued share capital of Foster Wheeler for about $3.3 billion or $32.69 per share. The purchase consideration consists of 0.8998 shares of AMEC stock along with a cash component of $16.00 in exchange of one outstanding share of Foster Wheeler common stock. Pending approvals, the deal is expected to culminate in the back half of 2014.
Earlier on Jan 13, Foster-Wheeler had made an announcement stating the provisional agreement between the two companies.
Considering the exchange rates and AMEC’s stock price as on Wednesday, Feb 12, the amount represents a gain of 13.8% from the day (Nov 26) of the public announcement of the possible deal and a gain of more than 20% compared with the 3-month volume weighted average price (ending Nov 26, 2013).
Foster Wheeler has been a market leader in mid-stream and down-stream oil and gas industry, which provided it the competitive advantage. However, the company was witnessing a growing need for capacity additions in a number of developing countries.
This acquisition, while meeting these requirements, will also complement Foster Wheeler’s long-term objective of expansion across diverse sectors including upstream, minerals and metals. Moreover, this acquisition will further enhance the company’s presence in Middle East. AMEC’s strength in the upstream exploration will perfectly complement Foster Wheeler’s strengths to drive up both top and bottom lines.
Post the acquisition; the combined company is expected to have a strong pro-forma revenues and backlogs of $10 billion each and an employee base of greater than 40,000. The increased capacity along with a broader footprint is likely to allow for increased strategic and commercial benefits to its stock holders.
However, the deal is under scrutiny at present by the personnel of a couple of securities litigation firms, Faruqi & Faruqi, LLP and Powers Taylor LLP to check for a possible judiciary infringement.
Post the regulatory approvals, a couple of non-executive directors from Foster Wheeler will join the combined company in the similar positions.
The company has also revealed its plan to disburse a one-time dividend of 40 cents per share, prior to the closing of the agreement in the latter half of 2014. This apart, Foster Wheeler’s existing shareholders will also have a 23% stake in the combined entity.
Foster Wheeler currently has a Zacks Rank #3 (Hold). Other better-ranked players in the engineering and heavy industry worth a look include AECOM Technology Corp. (ACM), Quanta Services, Inc. (PWR) and Fluor Corporation (FLR). All three stocks carry a Zacks Rank # 2 (Buy).