The UK’s Competition and Markets Authority (CMA) said it has found that Wood Group’s purchase of Amec Foster Wheeler “gives rise to competition concerns.”

The CMA said Wood Group has until August 9, 2017 “to formalise its final remedies proposal” but if the remedies offered “do not sufficiently address the competition concerns that the CMA has identified” the merger will be referred for an in-depth “phase 2” investigation.

Shareholders of Aberdeen-based oil and gas services giant Wood Group and rival Amec Foster Wheeler approved Wood Group’s roughly £2.2 billion recommended all-share offer for Amec Foster Wheeler in June.

The deal, though, remains subject to clearances from competition authorities.

The CMA said on Wednesday it has been investigating the planned merger of the two companies, which supply engineering services to the UK’s upstream offshore oil and gas sector.

“At the end of its initial investigation, the CMA has found that the merger could lead to competition concerns in the supply of engineering and construction (E&C) services and operation and maintenance (O&M) services on the UK continental shelf,” said the CMA.

“This is because the companies currently compete closely with each other, and are two of the main suppliers of these services; the merger will reduce the number of major players currently active in these markets from four to three …

“There are concerns that competition from other suppliers may not be sufficient to mitigate competition worries; and other suppliers seeking to enter the market or expand their UK presence may face significant barriers to doing so.

“The Wood Group announced at the start of the CMA’s initial investigation that it intended to offer proposals to resolve competition concerns, should any be found.

“Therefore, the case team looking at the merger has (without prejudice to the outcome of the investigation) worked constructively with the two companies involved to shape proposed remedies and provide guidance on whether these would be suitable to address possible competition issues.

“The Wood Group has until 9 August 2017 to formalise its final remedies proposal.

“If it does not formally submit a remedies proposal, or if the remedies offered do not sufficiently address the competition concerns that the CMA has identified, the merger will be referred for an in-depth ‘phase 2’ investigation.”

Kate Collyer, the CMA’s deputy chief economic adviser and the decision maker in this case, 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.

“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 and Amec Foster Wheeler said in a statement they consider that their proposed remedy is “sufficient to address the CMA’s competition concerns and to obtain clearance.”

Wood Group said the proposed remedy was in respect of assets and operations of Amec Foster Wheeler that represent the majority of Amec Foster Wheeler’s UK upstream oil and gas business located in the UK and serving UK customers (excluding its commissioning business, qedi).

“Wood Group and the CMA have been working constructively to progress consideration of this remedy,” said Wood Group.

“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.”

Wood Group added: “The M&A 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.”

Wood Group CEO 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 CEO 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.

“We remain committed to closing the transaction in quarter four this year.”