WorleyParsons buys back the farm after series of big acquisitions

WorleyParsons will take a global lead in energy and resource engineering consultancy after its landmark $4.6 billion acquisition.

WorleyParsons CEO Andrew Wood. Illustration: Sturt Krygsman.

WorleyParsons will take a global lead in energy and resource engineering consultancy after its landmark $4.6 billion acquisition of US rival Jacobs Engineering.

The deal will be financed in part by a $2.9bn equity raising that will deliver the US-based firm $US2.6bn ($3.7bn) in cash and $US700 million in stock or 11 per cent of the combined firm.

The two sides have known each other for some time, in part because the global engineering business has been built through a rapid acquisitions.

One of those deals was the 2013 purchase of Australia’s Sinclair Knight Merz for $1.3bn, so WorleyParsons CEO Andrew Wood is buying back the farm.

Jacobs wants to specialise in aerospace and infrastructure, so when Wood knocked on the door 10 months ago, Jacobs’ Steve Demetriou was a willing listener. Apart from the conglomeration of different businesses, the industry has also proved to be a minefield because of the high prevalence of government contracts, which have raised eyebrows for both firms in the past.

Bribery charges are not unheard of and vigilance and good governance are key to survival.

Wood told The Australian: “Our reputation is everything and we have very strong compliance systems around the globe.”

But there was none of that negative talk yesterday, only talk about the close cultural fit for the two companies.

The deal is a welcome step into the world for Australian companies and is a massive bet by Wood, given his market value ahead of the deal was $5bn and now he will be running a global business with 57,000 people.

Australian firms have to expand offshore given the small size of the local market, and thankfully there are some visionaries like Wood and chairman John Grill who are prepared to take the plunge.

To be fair, there are others including Reliance, Reece, NuFarm, Aristocrat and Boral who in recent years have made transformational deals offshore. The percentage of revenues based in the US will increase from 30 to 49 per cent after the deal.

The percentage reliant on hydrocarbons will fall from 62 to 39 per cent.

Worley is specialising in energy and resources while Jacobs, the one-time engineering services conglomerate, has narrowed its product range to infrastructure and aerospace.

Two years ago, Worley knocked back a conditional offer from Dubai-based Dar Group at $11.80 a share.

Dar has since increased its stake to 26 per cent.

But this is likely to be diluted in the wake of yesterday’s move, even if the Jacobs stake is an obvious start for a rival bidder.

Jacobs will get its stock at $16.92 a share, which is the theoretical ex-rights price, but local shareholders will pick up the stock for $15.56 a share, an 8 per cent discount to the $17.84 market price.

By all reports the UBS-advised deal was favourably received by Australian fund managers.

This, too, should give other Australian companies the courage to make similar deals with the knowledge the right deals attract local fund manager support, contrary to naysayer claims.

This one was attractive because it is moving Worley into a global leadership position.

Schott across the bows

Energy Security Board chairman Kerry Schott confided at a CEDA lunch in Melbourne yesterday that her path through the stages of grief at the death of the NEG was stuck on anger.

Which is a useful frame of mind for this Friday’s COAG energy ministers meeting in Sydney, which will take on a whole new light in the wake of the Wentworth by-election result.

The ALP wants the government to restore the NEG, which has nearly universal industry and user support, but was cancelled by former prime minister Malcolm Turnbull.

Friday’s meeting is due to consider the proposed ESB draft legislation, but just how the states treat that in the wake of the federal government’s games is anybody’s guess. My guess is the states will have a dummy spit.

They were close to agreement on a national scheme but Canberra pulled the pin, so why should the states agree to anything that Canberra suggests?

Energy Minister Angus Taylor wants to push his reliability standards, which are basically a guarantee from retailers and big users that they will supply committed capacity in some form or another.

The ACCC price plan is also on the agenda, but again this needs state support.

At yesterday’s luncheon, Schott said Australia would meet its Paris obligations off the back of individual state commitments and she also agreed that in the absence of any commitments from Canberra, industry could conceivably work on its accord.

Bright future

Over the past decade, the Future Fund has grown by $88.3bn to $148.8bn from the $60.5bn in seed capital awarded by then treasurer Peter Costello.

In the year to September, the fund returned 10.7 per cent, compared to the media super fund’s return of 9.7 per cent.

Future Fund boss David Neal picked up $1.3m for his efforts. Returned investment chief Stephen Gilmore was the highest paid at $1.4m, including $461,595 in termination benefits.

The fund has moved up the risk curve slightly with equities accounting for 31.8 per cent of the fund, up from 27.8 per cent at the end of June last year, and investments in the US and other developed markets up from 14.9 per cent to 18 per cent.

Flying high

The strength of the Australian economy was underlined yesterday with a rare profit upgrade from Virgin, after it revealed it was on track for a first-half profit lift of 22 per cent to $100m (pre-tax), despite a projected $88m hit from higher fuel costs.

Virgin released the numbers amid a board meeting yesterday ahead of its November 7 annual meeting.

Some analysts had forecasts as low as $35m for the half-year numbers, which explains why Virgin released its latest financial news.

Qantas holds its annual meeting on Friday and its stock bounced 1.4 per cent to $5.67 on the news.

It will release its latest quarterly numbers on Thursday ahead of the annual meeting and would be expected to benefit from the same uplift as Virgin.

Virgin’s stock price was up slightly because the stock is trading on expectations that one of its big shareholders, China-based HNA with 20 per cent or Etihad with 21 per cent, will sell out.

Yesterday’s statement reflected better-than-expected traffic numbers, including strong corporate sales, which has allowed the airline to cover increased fuel costs.

The strong corporate demand has meant the airline has not had to discount fares to fill its planes.

But higher fuel costs will inevitably flow into higher fares; it’s just that at this stage the airlines have been able to cover the costs.