Takeover Attempt Falls Through
Wood Group (WG.) shares plunged 38% to 122.3p on Monday after Sidara unexpectedly pulled out of merger talks. The Dubai-based engineering and consulting company, known formally as Dar Al-Handasah Consultants Shair and Partners Holdings, decided not to make a formal offer, citing “increasing geopolitical risks and financial market uncertainty” as key contributors. This dramatic fall exemplifies the hit stock price takes from unsuccessful merger talks, especially in highly volatile markets.
PC: sharesmagazine.co.uk
Sidara’s Initial Proposal and Negotiations
Sidara had written to Wood Group on 30 April with a 205p per share offer. This was followed by two further increases in the middle of May, which took the offer, for the ordinary shares, to 220p. The board of Wood Group has rejected the earlier offers because of the relatively low valuation. Negotiations went on until Sidara made its final offer of 230p a share on 29th May, which was 52% over Wood’s closing price before the first approach. Sidara finally withdrew the deal from an exceptionally pricey ultimate offer price.
Reasons for Withdrawal
Sidara axed the takeover talks at a moment of peak uncertainty in the economy and geopolitics. The firm’s decision not to move forward had already been brewed into the global market turmoil by soft US economic data and raised tensions in the Middle East. In this changed set of circumstances, accompanied by rising uncertainty, Sidara was less likely to finalise the acquisition deal. This example conveyed why it is hard to close a multinational transaction in times of high uncertainty within the economy.
Wood Group’s Response and Outlook
However, Wood Group kept a positive business outlook in response to Sidara’s withdrawal. It once again gave strategic direction and reaffirmed the basic outlooks in relation to 2024 and 2025. With that effect, Wood Group says that the growth strategy is on course, with EBITDA pushed up, improved margins, and a strong order book registered. Wood Group’s board expressed confidence in delivering meaningful free cash flow and meeting growth targets notwithstanding the setback.
Market Reactions and Future Prospects
According to AJ Bell head of financial analysis, Danni Hewson, investor sentiment has changed around the world due to the volatility of the markets. That might have been a relief for Sidara, who has saved himself from what would have been a hot potato acquisition in fluid circumstances. Many companies, cutting across sectors, are reviewing positions and strategies to get through the looming economic storm, hence the cautious approach adopted in some of the recent corporate manoeuvres.
Now that takeover talks are officially off the table, Wood Group finds itself in a very precarious position, not least with its share value. However, with faith placed in future prospects buoying outlook and strategy, recovery could well feature far enough down the line to see it through some of the turbulence the market is having at the moment.
