Wood Group urged to move listing to US or seek sale

Wood CEO Ken Gilmartin

Aberdeen-based global engineering and consulting giant John Wood Group has been urged by activist investor Sparta Capital Management — which claims to be a “significant” Wood shareholder — to either move its stock market listing from London to the US or consider a sale of the firm.

Wood, one of Scotland’s biggest listed firms, employs more than 35,000 people in about 60 countries.

The call from the London-based hedge fund comes 11 months after the collapse of a £1.66 billion takeover approach for Wood from New York private equity firm Apollo Global Management that was pitched at £2.40 per share in cash.

Wood’s shares have since fallen to around £1.42, reducing the Aberdeen firm’s stock market value to just under £1 billion.

A representative for Sparta Capital Management declined to confirm to Reuters how much Wood Group stock it owns. Wood Group also declined to comment.

In a letter to Wood chair Roy Franklin and copied to CEO Ken Gilmartin that Sparta made public, the hedge fund’s CIO Franck Tui wrote: “Thank you for the many opportunities you have given us to continue our discussions.

“As you know, we have been a significant investor in Wood Group since early 2022, and like many of your shareholders we are frustrated by the continued underperformance of the shares.

“We are now one year on from the lapsed bid process with Apollo and 17 months since you announced your strategy refresh.

“Despite the many operational achievements that you have recorded since then, your shares languish at 130p – 140p, which, with the exception of just one occasion in the last five years, are the all-time lows for the shares.

“In the context of this, we believe that the board must be realistic on how it can best achieve fair value for shareholders; if the UK public markets are unwilling or unable to engage in Wood’s story, we believe you should undertake a strategic review and actively seek alternative solutions.

“We note, for example, the recent successful attempts by corporates to move their primary listing away from markets which they have determined do not recognise the true worth of their businesses.

“In particular, the US, where Wood’s peers Jacobs and KBR trade, and where you have significant operational and executive presence, would seem a logical potential listing venue.

“Equally, we have been pleased to see a significant up-tick in M&A activity in Q1 2024, and financing markets which appear to be supportive of public to private transactions.

“We have spoken to many of your existing investors, and there is widespread agreement that something must be done to address the poor share price performance.

“As such, we urge you to conduct a strategic review with an open mind as to the best way to achieve fair value for shareholders.

“If you conclude that shareholder value will be maximised through a sale of the company, we encourage you to engage with any suitable bidders who may emerge during this process.”

On March 26, Wood said its order book was up 4% to $6.3 billion as the firm reported 2023 results and upgraded its outlook.

The Aberdeen firm said its 2023 loss of $105 million “reflects operating profit more than offset by finance costs and tax.” 

On March 26, Wood announced a “simplification programme to drive efficiency” with targeted annualised savings “of around $60 million from 2025.”

Wood’s 2023 revenue of $5.9 billion was broadly in line with the firm’s guidance, up 8% on 2022, with growth across all business units, led by Consulting.

Sparta added in its letter: “In spite of these many achievements, Wood’s share price has languished, and the company remains the lowliest valued company in the sector.

“Wood trades at 1/3rd of the multiple of the comparable, higher quality peers like Worley (often cited as your key competitor and the business most like Wood), Jacobs and KBR and a 48% discount to the sector average and with only Tecnicas Reunidas trading cheaper, which given that according to consensus numbers, it is ex-growth with close to half the margins, this is would appear to be a low bar …

“We accept and acknowledge that part of this underperformance and lack of shareholder engagement in the equity story is beyond your control … UK mid-caps have chronically underperformed global equities in recent years.

“Whatever the reasons for this market-wide underperformance, as a transformation story with history of poor execution, you are a ‘show-me’ story and, as such, will feel the full effect of this apparent indifference from public markets.

“We urge you to be realistic that these dynamics will not shift anytime soon when assessing how best to serve shareholders in the near term …

“In Summary … “You are delivering operationally, yet your shares trade at the all-time lows. In the context of the Apollo bid process, you described their approaches of 200p to 230p as proposals which ‘significantly undervalued the repositioned group’s prospects.’

“We don’t doubt that, fundamentally, Wood is worth significantly more than where it is currently trading in the public markets and indeed more than those offers. However, if there is no realistic prospect of achieving that value steady state in the public markets, then this is a moot point.

“When we look at the behaviour of your core holders at the time of the previous approach, we note that institutional holders sold millions of shares at an average price of 214p – their actions speaking louder perhaps than any assurances of their belief in the fundamental value they may have offered at the time.

“This trading pattern suggests that, at the time of the offer, shareholders accepted, out of brutal pragmatism, that realising 200p+ today, was a better course than hoping for a multiple of that price, at some point in the future.

“You have given the UK public markets 17 months to recognise the value creation possible in a 36 month turn-around plan.

“The disconnect between intrinsic value and the value assigned by the market has never been wider. We believe that it is time to recognise that the next chapter of Wood’s journey could be best supported by different owners, and we urge you to undertake a strategic review and explore the best way to maximise shareholder value, including a sale of the company.

“We have sent this letter to you first, but we have also chosen to make this letter public so that the debate can be open and transparent, and we encourage other shareholders to make their views known to you.

“We look forward to continuing our discussions.”

London newspaper The Financial Times quoted “a person close to the company” (Wood) as saying: “There has been a lot of popular talk about listing in the US but it is not a silver bullet.

“The focus right now is on delivering on the three-year strategy announced in November 2022.”