Our largest oil and gas engineering group is trying to surf on a couple of waves to reach its next growth target. WorleyParsons Limited (ASX: WOR) looks poised to nearly double its revenue after it announced today that it was buying the energy, chemicals and resources (ECR) division of US-listed Jacobs Engineering Group Inc for US$3.3 billion ($4.6 billion). Shares in WorleyParsons are in a trading halt as the company launches an underwritten accelerated non-renounceable entitlement offer to raise $2.9 billion in fresh capital to help fund the takeover. Should investors get excited? The acquisition looks compelling for a number…
To keep reading, enter your email address or login below.
Our largest oil and gas engineering group is trying to surf on a couple of waves to reach its next growth target.
WorleyParsons Limited (ASX: WOR) looks poised to nearly double its revenue after it announced today that it was buying the energy, chemicals and resources (ECR) division of US-listed Jacobs Engineering Group Inc for US$3.3 billion ($4.6 billion).
Shares in WorleyParsons are in a trading halt as the company launches an underwritten accelerated non-renounceable entitlement offer to raise $2.9 billion in fresh capital to help fund the takeover.
Should investors get excited?
The acquisition looks compelling for a number of reasons but it shouldn’t be lost on investors that the company is capitalising on a few positive tailwinds as it consummates the deal.
The first is the high oil price that is driving increasing demand from oil and gas customers for engineering and maintenance services.
The takeover of Jacobs ECR will deepen WorleyParsons reach into the sector as the target is ranked number 1 globally for complex hydrocarbon and chemical projects.
WorleyParsons is also capitalising on its strong share price, which has rallied 27% over the past year when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index is up only a little over 1%.
Here are a few other key points about the takeover:
- The deal is circa 20% earnings per share (EPS) accretive in FY18 on a proforma basis before merger synergies.
- Synergies are estimated to reap around $130 million a year after two years but there is a one-off cost of about $160 million to bed down the acquisition.
- Management believes the takeover will improve earnings stability as it will diversify WorleyParsons earnings and increase its exposure to more earnings streams.
- The entitlement will give shareholders the right to buy 1 new share for every 1.47 shares held at a price of $15.56 a pop – a 12.8% discount to the last traded price.
- The entitlement offer is on top of the $985 million in new shares it will issue Jacobs and additional debt of $895 million.
- WorleyParsons annual revenue will jump to $9.2 billion post-merger from $4.7 billion before the merger while earnings before interest, tax, depreciation and amortisation (EBITDA) will double to $735 million.
- The chairman and founder of WorleyParsons, John Grill, is putting his money where his mouth is and will put $100 million into the entitlement offer.
I think the deal makes good sense and I believe analysts will react positively to the merger.
I am a shareholder in WorleyParsons and I intend to take up my entitlements.
WorleyParsons isn’t the only engineering services contractor in the resources space that has performed well. NRW Holdings Limited (ASX: NWH), Emeco Holdings Limited (ASX: EHL) and Seven Group Holdings Ltd (ASX: SVW) have also outperformed the market.
If you are looking for other stocks that are well placed to race ahead in FY19, you will want to read this free report from the experts at the Motley Fool.
Click on the link below to find out more.
For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..
But knowing which blue chips to buy, and when, can be fraught with danger.
The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."
Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.
The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.
Click here to claim your free report.
Motley Fool contributor Brendon Lau owns shares of Seven Group Holdings Limited and WorleyParsons Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.