Wood Group has grounds to face down Apollo

Jacobs Solutions

23/02/2023 16:46

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are their own.)
       LONDON, Feb 23 (Reuters Breakingviews) - John Wood Group
 WG.L  has a seriously pushy bidder. On Wednesday evening the UK
infrastructure firm, which provides services to oil and gas
majors, said it had rejected three offers from U.S. private
equity giant Apollo Global Management  APO.N . While the latest
230 pence a share one represents a 50% premium to Wood Group’s
closing price on Wednesday, the target has reasonable grounds to
say no.
    The 1.4 billion pound company languishes at a steep discount
to global rivals like Jacobs Solutions  J.N  and Aecom  ACM.N ,
which Barclays reckons on average trade on 11 times their 2023
EBITDA. Wood Group’s latest offer implies only around seven
times on the same metric. The gap is down to a series of
blunders including an ill-advised takeover of Amec Foster
Wheeler in 2017, as well as earnings misses. Even so, boss Ken
Gilmartin reckons ongoing high oil and gas prices will ramp up
demand for his company's services and may lead to higher
earnings growth than the mid-to-high single digits he promised
at an investor day in November.
    Admittedly Wood Group shares are hovering around 200 pence,
far below Apollo’s offer. That implies little scope for a
bidding war, which will worry those investors who don’t share
Gilmartin’s rosy vision. Still, if he’s right and Wood Group
trades on the same multiple at its peers, it would be worth
nearly 3.8 billion pounds. That’s worth hanging tough for. (By
Aimee Donnellan) 
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 (Editing by George Hay and Streisand Neto)
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