WorleyParsons’ acquisition of Jacobs Engineering Group’s ECR arm wins Citi analysts’ backing

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Analysts at investment bank Citi have backed WorleyParsons’ acquisition of Jacobs Engineering Group’s energy, chemicals and resources business, saying that the $4.6 billion deal will offer diversification for the company.

Citi says the deal will make Worley (WOR) a market leader in its core sectors and position it to benefit from a recovery in its key markets.

WorleyParsons’ target of $130 million worth of synergies from the transaction represents 1.5 per cent of the combined group’s cost base.

Citi says typically, cost synergies for M&A transactions typically range between 1 per cent and 2 per cent of the cost base.

“Further, WorleyParsons’ recent successful cost-out program increases our confidence in the company’s ability to deliver on the synergy targets,” says Citi analysts.

“Our forecast assumes flat margins in the Jacobs ECR business over the forecast period.”

Citi analysts say in their view, the acquisition of the Jacobs operations reduces the likelihood of a potential takeover of WorleyParsons in the short term.

This is given the size and complexity of integrating the acquisition.

For fiscal 2019, estimate earnings per share falls 20 per cent due to the dilution from the capital raising.

Citi has a new price target on the stock of $20.70, which is down 3 per cent from its earlier forecast.