MONTREAL – An analyst with Dundee Capital Markets says he hopes rumours are unfounded that SNC-Lavalin Group Inc. is taking into consideration the purchase of John Wood Group PLC, a multinational oil and gas services company headquartered in Aberdeen, U.K.
Analyst Maxim Sytchev states that even though investing in oil and gas as WTI crude falls below US$30 a barrel is a sound long-term strategy, it’s not just one that will endear SNC investors despite $1.4 billion in cash and also the 407 around the monetization block.
“Doubling down on energy is not something which shareholders would appreciate,” said Sytchev inside a research note. “We think that investors would view the potential allocation to such a transaction as misallocation of capital.”
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The London-based Financial Times reported Wednesday that based on someone acquainted with the companies, the Montreal-based engineering and construction giant was weighing up an offer for Wood Group at up to 3-billion pounds ($6.21 billion), though no formal approach has been created and there is no certainty one ever will be.
SNC’s stock fell nearly five per cent from the a lot of $39.99 around the TSX Wednesday to a low of $38.12 on Thursday at noon, though it did begin to climb within the afternoon. Meanwhile, Wood Group’s stock gained a couple of.5 percent since Wednesday, closing at 568.50 on Thursday.
Sytchev says he’d see this transaction in a negative light because it is a departure from the company’s projected intentions to scale up its water and infrastructure engineering business.
“Even though it is not really a very high-growth market, it’s a lot more steady compared to commodity exposed verticals,” Sytchev said.
SNC acquired the Kentz Corp Ltd. gas and oil, petrochemical and mining engineering company for $2.1 billion in June 2014, when oil still sold for US$115 a barrel.
The leader of this transaction was Neil Bruce, who replaced Robert Card as CEO of SNC-Lavalin last November.
Bruce, who joined the company in January 2013, is credited for helping transform the company’s oil and gas business from the niche 3,000-employee division right into a 20,000-strong organization.
SNC spokesman Louis-Antoine Paquin could not confirm if the company is considering an offer for Wood Group, telling the Financial Post that it’s company policy to not comment on rumours.
“As a public company, we’d inform markets if your material change occurs,” he said.
Before the Kentz acquisition, Sytchev had suggested the Houston, Texas-headquartered Wood Group Mustang division like a potential fit for SNC, but didn’t assume the entire Wood Group company would be in play.
“Simply put, the whole entity is too big for SNC,” he said.