Shares in Amec Foster Wheeler PLC (LON:AMFW) (LSE:AMFW.L) have surged 18.6% higher after news of an all-share merger with John Wood Group PLC (LON:WG) (LSE:WG.L). Under the terms of the combination, each Amec Foster Wheeler shareholder will receive 0.75 New Wood Group shares.
The terms of the merger mean that based on the closing price of £7.52 per Wood Group share on 10 March 2017, each Amec Foster Wheeler share is valued at £5.64. This represents a premium of 28.7% to the prior 30 trading day volume weighted average share price of £4.53 per Amec Foster Wheeler share. It also represents a 15.3% premium to the closing price of £4.89 per Amec Foster Wheeler share on 10 March.
The combination will result in Amec Foster Wheeler shareholders owning approximately 44% of the share capital of the combined group. Synergy opportunities have been identified which indicate value creation potential. Wood Group believes the combined group will be able to achieve significant sustainable cost synergies of at least £110 million per annum on a recurring basis. Wood Group also believes significant additional revenue growth opportunities may be realised by the combined group.
In my opinion, the merger makes sense due to synergies and sales growth potential. I think the combined company could perform well on a relative basis. In the last year, Amec Foster Wheeler and Wood Group shares have risen 17% and 24% respectively. This is in line with the performance of sector peers Tullow Oil plc (LON:TLW) (LSE:TLW.L), BP plc (LON:BP) (LSE:BP.L), Premier Oil PLC (LON:PMO) (LSE:PMO.L) and BHP Billiton plc (LON:BLT) (LSE:BLT.L). BP shares are 33% higher, BHP Billiton shares are 56% up, Premier Oil shares are 16% up and Tullow Oil has gained 22%.
I believe the combination of Amec Foster Wheeler and Wood Group could register improved share price performance in the long run. Therefore, I believe its performance on a relative basis when compared to shares such as BP, BHP Billiton, Premier Oil and Tullow Oil could be positive.