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Home > News & Events > News Releases > News Release
Disposal of Well Support Division for $2.8 billion Return of cash of not less than $1.7 billion
14 Feb 2011

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Disposal of Well Support Division for $2.8 billion
Return of cash of not less than $1.7 billion

Wood Group, the international energy services company, today announces it has entered into a conditional agreement to sell its Well Support Division to GE for cash consideration of $2.8 billion (the “Disposal”). Following the Disposal, the Board of Directors intends that Wood Group will return cash of not less than $1.7 billion to shareholders (the “Return of Cash”).

Highlights:

  • The price of $2.8 billion fully recognises the strong performance and future prospects of the Well Support Division. Net proceeds after estimated tax, fees and expenses are $2.6 billion. For the year ended 31 December 2010 the Well Support Division had revenues of $947.1 million, EBITDA of $165.9 million and EBITA of $128.1 million. At 31 December 2010 it had gross assets of $604.7 million.
  • The Disposal will accelerate the delivery of value to shareholders and reflects Wood Group’s success in building the Well Support Division’s differentiation and market position as a leading provider of products and services for drilling and production operations.
  • The Disposal of the Well Support Division, together with the recently announced acquisition of PSN, is in line with Wood Group’s enhanced strategic focus on its core engineering and operations & maintenance activities in its Engineering & Production Facilities and Gas Turbine Services divisions.
  • Conditions in the oil & gas and power markets are anticipated to continue to strengthen and Wood Group will continue to pursue its strategy of targeted geographic expansion and broadening of the service offering through organic and acquisition-led growth.
  • Having considered the expected net proceeds from the sale of the Well Support Division, together with the forecast operating cash flow of Wood Group, including associated working capital requirements, the Group’s capex profile, nearer term acquisition opportunities and the recently announced acquisition of PSN, the Board intends that Wood Group will return cash to shareholders of not less than $1.7 billion (the “Return of Cash”). Following the Disposal and the Return of Cash, the ratio of illustrative average gross debt to 2010 pro forma EBITDA will be 1.0x. Details regarding the mechanism for the Return of Cash will be announced following the completion of the Disposal.
  • The effect of the Disposal of the Well Support Division, together with the Return of Cash, is expected to be significantly earnings per share enhancing immediately following completion.
  • The Disposal is conditional, amongst other things, upon obtaining anti-trust clearances and the approval of Wood Group shareholders at a general meeting (the “General Meeting”). The Disposal is targeted for completion by the end of Q2 2011. A circular containing further details of the Disposal, the action recommended to be taken by Wood Group shareholders and setting out the notice of the General Meeting and the resolution required to approve the Disposal will be sent to Wood Group shareholders shortly.

Commenting on the Disposal, Allister Langlands, Chief Executive of Wood Group, said:
"The significant investment programme in Well Support over the years and the expertise and dedication of all our people is reflected in the price achieved. I believe that GE will be a good owner of the business and, with its scale and reach, be able to accelerate the future international growth of the business. I want to thank all the Well Support people for their outstanding service to Wood Group over many years, and I wish them every success in the future.”

“Our shareholders will benefit from a significant return of cash and we plan to continue to pursue our successful growth strategy of targeted geographic expansion and broadening of the service offering in our core engineering and operations & maintenance activities in oil & gas and power markets.”

Claudi Santiago, President and CEO, GE Oil & Gas said:
“With world-class products and people, Wood Group’s Well Support division has excellent strategic fit with our business model of high technology engineering, manufacturing and services. The acquisition is another major step forward for GE Oil & Gas in executing our strategy to equip and serve our global oil and gas customers with the mission-critical equipment and solutions required to address their toughest technical challenges and growth objectives.”

This summary should be read in conjunction with the full text of the announcement.

Enquiries:
There will be a conference call to discuss the Disposal at 9am today. The dial in number is +44 1296 317 500 and the pass code is 163 481. The call will also be available on www.woodgroup.com.

Results for the year ended 31 December 2010 will be announced on 21 February 2011 and a presentation for analysts will be held at 9am at the Lincoln Centre, 18 Lincoln’s Inn Fields, London, WC2A 3ED.

Wood Group
Allister Langlands, Chief Executive
Alan Semple, Group Finance Director
Nick Gilman, Group Head of Communications & Investor Relations
Tel: +44 (0)1224 851000

Credit Suisse (Financial Adviser and Corporate Broker)
James Leigh-Pemberton
Greg Weinberger
Tristan Lovegrove
Tel: +44 (0)20 7888 8888

J.P. Morgan Cazenove (Financial Adviser and Corporate Broker)
Michael Wentworth-Stanley
Robert Constant
Tel: +44 (0)20 7588 2828

Brunswick (Public Relations)
Patrick Handley
Nina Coad
Tel: +44 (0)20 7404 5959


Notes to editors

  • Wood Group

Wood Group is an international energy services company with US$5 billion of revenues, employing more than 29,000 people and operating in 50 countries. The Group has three divisions - Engineering & Production Facilities, Well Support, and Gas Turbine Services - providing a range of engineering, production support, maintenance management and industrial gas turbine overhaul and repair services to the oil & gas, and power generation industries worldwide.

Further information is available at www.woodgroup.com.

  • Well Support

Well Support offers services, products and solutions to global customers for the development and production enhancement of their oil and gas reservoirs. The Well Support Division, headquartered in Houston, TX, is comprised of three businesses: Wood Group ESP, Wood Group Pressure Control and Wood Group Logging Services.

  • Cautionary Statement

This announcement has been issued by, and is the sole responsibility of, Wood Group. No representation or warranty express or implied, is or will be made as to or in relation to, and no responsibility or liability is or will be accepted by Credit Suisse Securities (Europe) Limited (“Credit Suisse”) or J.P. Morgan plc or by any of their affiliates or agents as to or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers and any liability therefore is expressly disclaimed.

Credit Suisse is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Wood Group and for no one else in connection with the matters set out in this announcement and the Disposal and will not be responsible to anyone other than Wood Group for providing the protections afforded to clients of Credit Suisse nor for providing advice in relation to the Disposal or any matters set out in this announcement. Neither Credit Suisse nor any of its subsidiaries, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Credit Suisse in connection with this announcement, any statement contained herein or otherwise.

J.P. Morgan plc, which conducts its UK investment banking business as J.P. Morgan Cazenove and is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Wood Group and for no one else in connection with the matters set out in this announcement and the Disposal and will not be responsible to anyone other than Wood Group for providing the protections afforded to clients of J.P. Morgan plc nor for providing advice in relation to the Disposal or any matters set out in this announcement.

This announcement contains (or may contain) certain forward-looking statements with respect to Wood Group's current expectations and projections about future events. These statements, which sometimes use, but are not limited to, words such as "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning, reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. Statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. The information contained in this announcement is subject to change without notice and, except as required by applicable law, neither Wood Group, Credit Suisse nor J.P. Morgan Cazenove assumes any responsibility or obligation to update publicly or review any of the forward-looking statements contained herein. You should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement.

Nothing in this document should be construed as a profit forecast or be interpreted to mean that the future earnings per share, profits, margins or cash flows of Wood Group will necessarily be greater than the historic published figures.


Disposal of Well Support Division for $2.8 billion
Return of cash of not less than $1.7 billion

Introduction

Wood Group has entered into a conditional stock purchase agreement (the “Disposal Agreement”) to sell its Well Support Division (further details of which are set out in paragraph 3) to GE Energy Manufacturing, Inc. (“GE”) for cash consideration of $2.8 billion (the “Disposal”). The principal terms of the Disposal Agreement are described in more detail in paragraph 5.
The Disposal, because of its size in relation to the Company, is a Class 1 transaction for Wood Group under the Listing Rules and is therefore conditional, amongst other things, upon the approval of Wood Group’s shareholders. A circular will be sent to shareholders shortly containing further details of the Disposal and a notice convening a general meeting of the Company to consider a resolution to approve the Disposal.

Background to and reasons for the Disposal

The Board believes that the agreed price of $2.8bn is an attractive and certain value, which fully recognises the strong performance and future prospects of the Well Support Division. The Board also believes that the Disposal at the agreed price will accelerate the delivery of value to shareholders and reflects Wood Group’s success in building the Well Support Division’s differentiation and market position as a leading provider of products and services for drilling and production operations.
The Board considers the continuing Group to be well positioned to generate growth going forward. The disposal of the Well Support Division, together with the recently announced acquisition of PSN, is in line with the continuing Group’s enhanced strategic focus on services provision across its core engineering and operations & maintenance activities in its Engineering & Production Facilities and Gas Turbine Services divisions.
Conditions in the oil & gas and power markets are anticipated to continue to strengthen and Wood Group will continue to pursue its strategy of targeted geographic expansion and broadening of the service offering through organic and acquisition-led growth.

Information on the Well Support Division

The Well Support Division Chief Executive is Jim Renfroe and the Chief Financial Officer is Grant Johnston. The businesses in the Well Support Division comprise:

  • Wood Group ESP - An electric submersible pump design, manufacturing and service business providing electric submersible and surface pumps, variable speed controls and system integration offerings to the oil & gas sector. Wood Group ESP is headquartered in Oklahoma City, US and active in 45 countries. Wood Group considers Gareth C. Ford, President and CEO, and Steve Ross, Chief Financial Officer, the key executives who are important to the business of Wood Group ESP.
  • Wood Group Pressure Control - A manufacturer of surface wellheads and valves and provider of wellhead solutions to the oil & gas sector. Wood Group Pressure Control is headquartered in Houston, US and active in 22 countries. Wood Group considers Ian Milne, President, and Brian Small, Chief Financial Officer, the key executives who are important to the business of Wood Group Pressure Control.
  • Wood Group Logging Services – A provider of cased hole logging and slickline services to the oil & gas sector. Wood Group Logging Services is headquartered in Houston, with operations in the US, Argentina and Venezuela. Wood Group considers John Paul Jones, President, and Jon Piantes, Chief Financial Officer, the key executives who are important to the business of Wood Group Logging Services.

A summary of the trading results for the Well Support Division for the two years ended 31 December 2010 (on an IFRS basis) is set out below:

 

$m

Year ended 31 Dec 2010

Year ended 31 Dec 20092

 

Revenue

947.1m

813.7m

 

EBITDA

165.9m

106.7m

 

EBITA

128.1m

75.1m

At 31 December 2010, the Well Support Division had net assets of $361.7million and gross assets of $604.7million2.

Return of Cash to shareholders and financial effects of the disposal

Following completion of the Disposal, net cash proceeds, after estimated tax, fees and expenses, of approximately $2.6 billion are expected to be received and a post tax profit on Disposal of approximately $2.2 billion is expected to be realised.
Having considered the expected net proceeds from the Disposal of the Well Support Division together with the forecast operating cash flow of the continuing Group, including associated working capital requirements, the continuing Group’s capex profile, nearer term acquisition opportunities and the recently announced acquisition of PSN, the Board intend that Wood Group will return cash to shareholders of not less than $1.7 billion (the “Return of Cash”). Details regarding the Return of Cash are expected to be communicated to shareholders following completion of the Disposal. The Return of Cash will be subject to the approval of shareholders at a subsequent general meeting. Until the Return of Cash is completed, the proceeds of the Disposal will be deposited in the money markets with banks, or invested in money market funds, or used to repay part of the Group’s outstanding bank debt.
The effect of the Disposal of the Well Support Division, together with the intended Return of Cash to shareholders, is expected to be significantly earnings per share enhancing immediately following completion. Actual net debt at 31 December 2010 was $15 million and average gross debt for the year was $364 million. Average gross debt for the year ended 31 December 2010, adjusted to show the impact of the announced PSN acquisition and the Well Support Division Disposal, further adjusted for the minimum proposed Return of Cash of $1.7 billion, would have been $339 million and average gross debt to pro forma 2010 EBITDA would have been 1.0x.


Illustrative average gross debt ($million)

 

 

2010

Average gross debt 2010

 

 

364m

PSN acquisition finance

 

 

875m

Well Support Disposal

 

 

 

- Price

 

(2,800m)

 

- Estimated tax, fees and expenses

 

200m

 

 

 

 

(2,600m)

Return of Cash

 

 

1,700m

 

 

 

339m

 

 

 

 

Illustrative average gross debt/pro forma 2010 EBITDA

1.0x

Illustrative average net debt at 31 December 2010/pro forma 2010 EBITDA7

0.4x

Principal terms of the Disposal

Under the terms of the Disposal Agreement, the Disposal will be structured as a sale by Wood Group and several of its subsidiaries (together with Wood Group, the “Sellers”) of all of the shares held by them in their respective direct and indirect subsidiaries which together operate the Well Support Division’s business.
The consideration for the Disposal will be the cash payment at completion of $2.8 billion from GE to Wood Group. The consideration is subject to a customary working capital adjustment.
Completion of the Disposal is conditional, among other things, upon obtaining competition clearance from the United States and other applicable anti-trust authorities and the approval of Wood Group shareholders at a general meeting of the Company.
The Disposal Agreement may be terminated prior to completion in certain circumstances, including: (i) by Wood Group or GE if completion of the Disposal is not approved by Wood Group shareholders; (ii) by GE if the directors of Wood Group withdraw, qualify or adversely modify their recommendation of the Disposal; (iii) by Wood Group or GE if completion has not occurred by 13 May 2011 (or 13 February 2012 if the failure to complete is caused by a failure to obtain the necessary competition clearances by such date); or (iv) by Wood Group or GE (as applicable), in certain circumstances, where GE or Wood Group (as applicable) breaches its representations and warranties or fails to perform its covenants, subject to a 30 day grace period.
The Company has agreed to pay GE a break fee of $28 million, in certain circumstances, where the Disposal Agreement is terminated on account of (a) Wood Group shareholders’ failure to approve the Disposal or (b) the directors of Wood Group having withdrawn, qualified or adversely modified their recommendation of the resolution approving the Disposal.
In the period between signing and completion of the Disposal Agreement, Wood Group is subject to customary conduct of business and non-solicitation obligations.
The Disposal Agreement contains customary representations, warranties, covenants and indemnities which are also subject to customary limitations.
Those directors of Wood Group who hold shares in the Company have each agreed to provide irrevocable undertakings to cast all votes attaching to those shares of which they are the sole beneficial owner in favour of the resolution to be proposed at the general meeting of the Company to approve the Disposal which constitute, in aggregate, 29,742,815 ordinary shares in Wood Group, representing approximately 5.6 per cent. of the total ordinary issued share capital of Wood Group as at 21 January 2011 (the latest practicable date prior to publication of this announcement).
In addition, Wood Group and GE have agreed to discuss a commercial arrangement in the Gas Turbine Services sector. If no agreement is reached within 90 days, GE has agreed to pay Wood Group $50 million upon the later of 13 May 2011 or the closing of GE’s acquisition of the Wood Group’s Well Support Division.

Financial advice

Credit Suisse and J.P. Morgan Cazenove are acting as Joint Financial Advisers and Joint Corporate Brokers to Wood Group in relation to the Disposal.

Enquiries:
There will be a conference call to discuss the Disposal at 9am today. The dial in number is +44 1296 317 500 and the pass code is 163 481. The call will also be available on www.woodgroup.com.

Results for the year ended 31 December 2010 will be announced on 21 February and a presentation for analysts will be held at 9am at the Lincoln Centre, 18 Lincoln’s Inn Fields, London, WC2A 3ED.

Wood Group
Allister Langlands, Chief Executive
Alan Semple, Group Finance Director
Nick Gilman, Group Head of Communications & Investor Relations
Tel: +44 (0)1224 851000

Credit Suisse (Financial Adviser and Corporate Broker)
James Leigh-Pemberton
Greg Weinberger
Tristan Lovegrove
Tel: +44 (0)20 7888 8888

J.P. Morgan Cazenove (Financial Adviser and Corporate Broker)
Michael Wentworth-Stanley
Robert Constant
Tel: +44 (0)20 7588 2828

Brunswick (Public Relations)
Patrick Handley
Nina Coad
Tel: +44 (0)20 7404 5959

Notes to editors

  • Wood Group

Wood Group is an international energy services company with US$5 billion of revenues, employing more than 29,000 people and operating in 50 countries. The Group has three divisions - Engineering & Production Facilities, Well Support, and Gas Turbine Services - providing a range of engineering, production support, maintenance management and industrial gas turbine overhaul and repair services to the oil & gas, and power generation industries worldwide.

Further information is available at www.woodgroup.com.

  • Well Support

Well Support offers services, products and solutions to global customers for the development and production enhancement of their oil and gas reservoirs. The Well Support Division, headquartered in Houston, TX, is comprised of three businesses: Wood Group ESP, Wood Group Pressure Control and Wood Group Logging Services.

  • Cautionary Statement

This announcement has been issued by, and is the sole responsibility of, Wood Group. No representation or warranty express or implied, is or will be made as to or in relation to, and no responsibility or liability is or will be accepted by Credit Suisse Securities (Europe) Limited (“Credit Suisse”) or J.P. Morgan plc or by any of their affiliates or agents as to or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers and any liability therefore is expressly disclaimed.

Credit Suisse is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Wood Group and for no one else in connection with the matters set out in this announcement and the Disposal and will not be responsible to anyone other than Wood Group for providing the protections afforded to clients of Credit Suisse nor for providing advice in relation to the Disposal or any matters set out in this announcement. Neither Credit Suisse nor any of its subsidiaries, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Credit Suisse in connection with this announcement, any statement contained herein or otherwise.

J.P. Morgan plc, which conducts its UK investment banking business as J.P. Morgan Cazenove and is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Wood Group and for no one else in connection with the matters set out in this announcement and the Disposal and will not be responsible to anyone other than Wood Group for providing the protections afforded to clients of J.P. Morgan plc nor for providing advice in relation to the Disposal or any matters set out in this announcement.

This announcement contains (or may contain) certain forward-looking statements with respect to Wood Group's current expectations and projections about future events. These statements, which sometimes use, but are not limited to, words such as "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning, reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. Statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. The information contained in this announcement is subject to change without notice and, except as required by applicable law, neither Wood Group, Credit Suisse nor J.P. Morgan Cazenove assumes any responsibility or obligation to update publicly or review any of the forward-looking statements contained herein. You should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement.

Nothing in this document should be construed as a profit forecast or be interpreted to mean that the future earnings per share, profits, margins or cash flows of Wood Group will necessarily be greater than the historic published figures.