Sidara, the Dubai-based engineering firm that recently made a rejected takeover bid of Wood Group (LON:WG), will need to increase its bid if it wants to succeed, analysts have said.
Ashley Kelty of Panmure Gordon noted that he was “not surprised that the bid was rejected after the Apollo overtures last year where multiple bids were rejected up to 235 pence per share .
“Sidara will have to top that to get the board interested, given the improved position of the business over the last year.”
Dar Al-Handasah Consultants Shair and Partners, as Sidara is also known, made the $1.65 billion bid, proposing an offer price of 205 pence per Wood share.
Speaking during an investor call on the back of the group’s first-quarter results, Wood CEO Ken Gilmartin said: “We are now in an official offer period following an unsolicited preliminary and conditional proposal from Sidara.
“Wood’s board rejected the proposal unanimously yesterday, and as you would expect being a public company, we’re extremely limited in what more we can say at this stage. What I will say, is that our resolute focus remains on business as usual, building on our current growth momentum and delivering against our strategic priorities.”
A statement from Sidara suggested that another proposal is possible, “but there can be no certainty that an offer will ultimately be made”.
Wood Group rejected another takeover bid from US private equity giant Apollo Global Management last year, which offered 240 pence per share, reportedly valuing the firm at £1.66bn.
Last month, Wood shareholder Sparta Capital Management called for the firm to explore a sale or list in the US over its “poor” share price.
Results
The bid came just ahead of Wood’s first quarter results, which saw the company’s revenues dip to $1.35bn, down 6% compared to the first quarter’s $1.45bn.
However, the group’s EBITDA grew 4% year on year driven by increased margins and improved performance across all segments, helping to offset the lower revenues.
The company saw growth in its operations segment, reaching 5% to hit $624m. However, this was offset by lower revenue in its projects division, dropping 15% to $518m, mainly reflecting lower pass-through activity and lower EPC revenue in line with Wood’s strategic shift.
In addition, the company’s order book reached was $6.2bn, up 9% compared to March 2023.
“The strategic move to change the overall business is into year two of the three-year plan, and initial signs appear to be delivering on the longer-term goal,” Kelty noted.
Senior investment manager at RBC Brewin Dolphin John Moore added: “Yesterday’s announcement of another rejected bid for Wood was an interesting set up for today’s trading update – particularly in the context of previous private equity bids and shareholder unrest.
“What unites recent events surrounding the company is the belief that a smaller, slimmed down structure is what will help Wood achieve its full potential. Today’s update shows some progress in that direction, and the management team is patiently trying to work that out for the company to make sure it is maximising value – while other parties see speedier change as critical.
“As ever, the truth is likely to be somewhere in the middle. Estimates point to an improving earnings picture and Wood’s simplification programme is uncovering savings, but there is more that could be done – regardless of where the company’s future lies.”
Simplification
Speaking during the investor call, Wood’s Gilmartin said: “From a company standpoint, we are still in the second year of the three-year strategic turnaround.
“We have generated significant momentum in the business and we’re continuing to be very robust in driving what has been really strong performance and growing the business, growing the margin profile [and] continuing to be very selective in the areas that we work and by doing that, demonstrating consistent superior value to our clients.
“That’s going to be the focus for all of us as we go through this period, continuing to grow the business and return to significant free cash flow in 2025.”
Wood launched a simplification programme in March this year as it aims to drive higher margins.
Central to this strategy is reducing costs by putting greater ownership and accountability for functional activities into the business units, and reducing the number of central function roles, along with reducing complexity in its processes and procedures, and reducing external support costs.
Wood expects this programme to generate total annualised savings of around $60mn from 2025, with around $10mn of savings in 2024.
The company added that it expects high single-digit growth in adjusted EBITDA for its full year 2024 results. EBITDA growth in 2025 to is expected to exceed its medium-term target, with the annualised benefits from the simplification programme of around $60m.
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