John Wood Group Plc, a U.K. oil and gas services company, agreed to pay $955 million for PSN Ltd. to create the world’s leading brownfield production services provider. Shares rose to a record close in London trading.
Wood Group will pay $627 million to PSN shareholders in cash and its shares and will finance $328 million of PSN’s debt, the purchaser said today in a statement. The acquisition will roughly double Wood Group’s field service order portfolio to more than $6 billion, said Chief Executive Officer Allister Langlands.
Wood Group PSN will employ more than 22,000 people with around $3 billion in annual revenue from field production services in over 30 countries. PSN, which gets about 70 percent of its revenue outside the U.K., is providing services to Royal Dutch Shell Plc and Noble Energy Inc. among other clients and will add about $1.2 billion in annual revenue to Wood Group.
“This deal isn’t about job cutting and rationalization, it’s about creating a business for significant growth,” Langlands said. “One of the challenges in the oil and gas industry is funding enough high-quality people to meet demand of our customers.”
Wood Group rose 32.8 pence, or 6.7 percent, to a record 521 pence in London. Shares are up 69 percent this year.
The two Aberdeen-based companies are combining businesses to expand in new regions and plan to complete the transaction in the second quarter of next year.
“Whilst we see a logical and strategic fit for the PSN acquisition within Wood Group’s engineering and production facilities division, we feel that there is a risk of an equity issue in the New Year to reduce the level of debt taken on to fund the acquisition,” said Keith Morris, a London-based analyst at Evolution Securities Ltd. Morris cut his recommendation for Wood Group to “add” from “buy.”
Separately, Wood Group said its full-year performance will be “slightly ahead” of its expectations. In production facilities, the company is active in the North Sea and is developing its business in Angola, Australia and Oman.
“We certainly see a good growth coming in 2011,” Langlands said. The gas-turbine market will continue to be “soft again in 2011, just reflecting the economics for electricity generation at the current time particularly in Europe and North America.”
JPMorgan Cazenove Ltd. and Credit Suisse acted as joint financial advisers and joint corporate brokers to Wood Group. Goldman Sachs Group Inc. advised PSN on the transaction.