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Worley $4.6bn offer for Jacobs logical, say analysts

Glenn Freeman with AAP  |  22 Oct 2018Text size  Decrease  Increase  |  
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Oilfield services company WorleyParsons (ASX: WOR) will almost double in size if its proposed acquisition of Jacobs Engineering's energy, chemicals and resources division proceeds.

An international firm providing technical, professional and construction services across multiple industry sectors including architecture, engineering and construction, operations and maintenance, Jacobs Engineering is listed on the New York Securities Exchange.

WorleyParsons, which has a market capitalisation of $4.9 billion, says the deal will create a pre-eminent global provider of resources and energy services. The acquisition will diversify earnings, increasing exposure to more stable revenue streams, and generating significant cost and revenue synergies.

Morningstar senior equity analyst, Mark Taylor, describes the proposed deal as a "sensible, logical acquisition"

"There seems to be a number of solid synergies, but for me, the most sensible thing is using overpriced scrip to buy another business," he says.

oilfield oil rig

The $4.9bn deal would almost double the size of Worley Parsons

No-moat Worley Parsons is trading at a considerable premium to Morningstar's fair value estimate, which was $6.30 ahead of this announcement. The firm's last closing price was $17.84.

Taylor also notes the various other benefits the acquisition will bring the ASX-listed business, including greater exposure in North America and India – key markets occupied by Jacobs Engineering. It will also add another 30,900 employees across 27 countries.

Jacobs' ECR division had pro forma revenue of $US3.4 ($A4.78 billion), compared to WorleyParsons' current $A4.6 billion revenue.

"We are excited to combine Jacobs ECR's world-class capabilities with our global platform to create a leader across our key focus sectors, with greater earnings diversification and resilience," Worley's chief executive Andrew Wood said in a statement.

"Shareholders will have exposure to material EPS accretion, a strong long-term growth outlook and a conservatively leveraged balance sheet, while our employees will have increased opportunity for development."

The acquisition, which is subject to shareholder approval, would be funded by a combination of a $2.9 billion entitlement offer, $985 million in stock bonds to the US seller, and new debt.

Shares in WorleyParsons last traded at $17.84, around 60 per cent up on February 2016, before being placed in a trading halt prior to Monday's open.

 

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Glenn Freeman is senior editor at Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

 

. Glenn Freeman is senior editor, Morningstar Australia.

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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