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Worley’s share price jumps as it comes under takeover spotlight

There’s nothing like a little takeover speculation to put a fire under an ASX stock. The Worleyparsons Limited (ASX: WOR) share price got a taste of this as attention shifted the fight between management and its largest shareholder.

This is the kind of conflict that shareholders won’t mind. The WOR share price is outperforming with a 2.8% rally to $13.47 during morning trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up 0.7%.

In contrast, other stocks in the energy sector have only managed more modest gains. The Woodside Petroleum Limited (ASX: WPL) share price gained 0.6% to $31.88, the Santos Ltd (ASX: STO) share price increased 1% to $7.77 and the Oil Search Limited (ASX: OSH) improved by 1% to $7.19 at the time of writing.

A Dar-ing takeover by stealth

Shares in the oil and gas engineering group received an extra boost after it confirmed media reports that it had written to the Foreign Investment Review Board (FIRB) to oppose Dar Group’s application to increase its stake in Worley.

Dar holds a 20% stake in Worley and has the right to lift it to 23% via an equity swap. Dar, which is a Dubai-based contractor, requires FIRB approval to lift its shareholding in the ASX-listed entity.

“Worley also confirms that it has engaged with Dar regarding such further share acquisitions and requests by Dar for Worley Board representation and for a comprehensive business cooperation agreement with Worley,” said Worley in a statement to the ASX.

“The Worley Board believes that it is not in shareholders’ interests for Dar to further increase its shareholding in Worley by creeping acquisitions or for Worley to enter into a business cooperation agreement with Dar.”

The Chinese defence

Management is counting on the Huawei factor to argue its point. The Australian government believes Chinese government linked Huawei can’t be trusted to be involved in critical infrastructure work.

Worley is also suggesting that it’s in the national interest to keep Dar at arm’s length because it handles sensitive information and performs vital services for a range of governments and customers in Australia, the US and around the world.

Worley is the world’s largest engineering group that services the energy, chemicals and resources sector.

The group believes Dar wants to control the company and its customers won’t appreciate Dar’s representative having access to their information.

Foolish takeaway

Dar made an unsuccessful takeover bid for Worley in 2017 that sparked a jump in the Worley share price to around $10.44, which is about 30% below where the stock is currently trading.

Another interesting side effect from the M&A refocusing is whether that could give value shares an extra leg-up.

There are tentative signs that investors are finally favouring ASX value shares over growth stocks that trade at a premium.

Adding a M&A tint to the value sector will likely reinforce the emerging trend.

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Motley Fool contributor Brendon Lau owns shares of WorleyParsons Limited. Connect with him on Twitter @brenlau.

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.