LONDON, May 19, 2023 /PRNewswire/ -- Sparta Capital takes note of Apollo's decision to not pursue its fifth and final bid for Wood Group on the 15th of May.
As we made clear in our letter to the company's board in December, we believe Wood Group is a great company with outstanding long-term prospects. Wood is a leading engineering consultant and a net zero enabler over diversified end markets with a $230bn opportunity* and is held with a high degree of trust by some of the largest and most sophisticated organisations in the world.
We thank the board and executive management, as well as all involved at Wood Group, for their commitment and engagement as they explored Apollo's approach to its fullest conclusion. We know that these processes can be a distraction, but we note the business has continued to perform very well and has reported full year 2022 and Q1 2023 results ahead of expectations and maintained full year guidance for the year 2023. We also note Wood's statement that this positive trading momentum has continued into Q2 2023. This is a mark of the team's professionalism and of the very high quality of the business.
It is our understanding that Apollo's decision to withdraw was not related to any information revealed by the due diligence phase of the approach. This does not come as a surprise to us, given Apollo will have already analysed the extensive financial information published recently by Wood Group, including its financial statements for the year to December 2022 which were published alongside the full year results presentation on the 28th of March 2023.
In our December 2022 letter to Wood, we highlighted that, given the material undervaluation of the shares, the company was vulnerable to an opportunistic takeover approach; subsequent events have clearly vindicated this view. Given that the business prospects have continued to improve, but the share price is the same, we can only conclude that this vulnerability is even greater today.
Overall, the conclusions we drew at that time of our letter, remain apposite today, and the ensuing 6 months have validated the case we set out in December. Now, as then, we urge the board to deploy all the tools it has to hand in addressing the undervaluation. The most effective of these, in our view, remains the share buyback we previously proposed. With Wood's organic investment needs already prioritised, the continued strong performance of the business, the strong underlying cash-flow generation and the manifest undervaluation of the shares, allocating capital to a substantial buy-back programme is, we believe, an entirely logical decision. This would be highly accretive to the business, and we can see no obstacle to the board in taking this important step, as soon as possible.
We will continue to engage constructively with the company and endeavour to create value for all stakeholders.
Notes
*The $230bn addressable opportunity statistic is sourced from Wood Group's Capital Markets Day, held on 29thNovember 2022.
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Rob White / Michael Russell
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spartacapital@greenbrookadvisory.com
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