CMA raises concerns over Wood Group's takeover of Amec

The UK's competition watchdog has raised concerns over Wood Group's planned £2.2bn takeover of energy services rival Amec Foster Wheeler.

The Competition and Markets Authority (CMA) has instructed the firms to provide a proposed remedy or face an in-depth investigation.

It found the merger could reduce competition in the supply of services on the UK Continental Shelf (UKCS).

Aberdeen-based Wood Group has until 9 August to formalise its proposals.

Both companies said they continued to expect the planned merger to complete in the fourth quarter of this year.

If it goes ahead, the deal would create a company with a combined value of about £5bn.

'Competition worries'

In a statement, the CMA said its initial investigation had found competition concerns over the supply of engineering and construction services and operation and maintenance services on the UKCS.

It argued the merger would cut the number of major players currently active in these markets from four to three, and that competition from other suppliers "may not be sufficient to mitigate competition worries".

It also found that other suppliers seeking to enter the market or expand their UK presence could face "significant barriers to doing so".

Amec Foster Wheeler provides services to the Lomond platform in the North Sea

Kate Collyer, the CMA's deputy chief economic adviser, said: "We have consulted widely on the implications of this merger and it is clear that Wood Group and Amec Foster Wheeler have a particularly strong market position in the supply of key services to the upstream offshore oil and gas sector in the UK.

"The merger would, therefore, remove the rivalry between two of the four main suppliers of these services.

"Based on our initial investigation, this could significantly reduce customers' ability to obtain competitive bids, which could lead to increased prices and affect the competitiveness of the oil and gas industry in the UK."

'Working constructively'

In a statement, Wood Group said it had been "working constructively" with the CMA to "progress consideration" of a remedy offer it put forward in May.

It said: "Wood Group will now formally submit the remedy proposal to the CMA.

"The CMA will provisionally decide whether this remedy proposal is sufficient by 16 August 2017 at the latest, with its final decision due by 11 October 2017."

It added: "Both Wood Group and Amec Foster Wheeler consider that the proposed remedy is sufficient to address the CMA's competition concerns and to obtain clearance.

The M&A (mergers and acquisitions) process for this remedy is already at an advanced stage.

"Amec Foster Wheeler commenced a formal marketing process in May, which has attracted interest and is progressing well.

"As a result, Wood Group and Amec Foster Wheeler continue to expect the combination to complete in the fourth quarter of 2017.

Ms Collyer said: "The CMA's team will continue to work constructively with the Wood Group and Amec Foster Wheeler in the assessment of the remedies that they intend to formally offer to address these concerns.

"This merger will, however, warrant an in-depth investigation, unless the companies offer suitable proposals to address our concerns."

Wood Group chief executive Robin Watson said "Both sets of shareholders overwhelmingly supported the proposed combination and we continue to believe that the proposed remedy will be sufficient to obtain clearance from the CMA.

"We remain fully committed to completing the transaction in quarter four this year."

Amec Foster Wheeler chief executive Jon Lewis said: "Since the announcement of the remedy offer in May, Amec Foster Wheeler has made good progress marketing its UK upstream oil and gas business to a range of potential buyers and is continuing the divestment process."