Wood Group Must Buy Back Shares to Avoid Takeover, Investor Says

Nell Mackenzie
Thursday, December 8, 2022

Former Elliot Management activist fund manager Franck Tuil on Thursday told Wood Group to buy back some of its stock to avoid becoming a takeover target, sending shares in the oil services provider up by the most in six weeks.

It is the first public campaign for his $600 million multi-strategy fund, Sparta Capital, which said it has had six private meetings with the company, until the letter it published on Thursday. In the letter, Tuil said the Wood share price is cheap enough to make it the target of a takeover and believes that it has sufficient cash for a share buyback. 

There is a lot in the letter that Wood Group said it agrees with but it also believes the approach that the company set out on its recent capital markets day to not buy back shares is the right one, a spokesperson for the company told Reuters.

"We believe that the approach set out at our recent capital markets day with a focus on driving sustainable free cash flow is the right one," he said in an emailed comment. 

Shares in Wood Group were last up almost 7% on Thursday at 1.337 pounds ($1.63). The company's market value has fallen this year by a third to 865.15 million pounds. 

London-based Sparta Capital is a significant shareholder, said a source familiar with the matter, without disclosing the size of its holding.

Wood Group in September sold its consulting group, Built Environment, to Canadian engineering consultancy WSP Global for a net $1.7 billion. The proceeds of the sale, Wood said at the time, would be used to reduce the company's debts. 

"We believed that this decision would finally and comprehensively resolve a series of strategic and operational missteps, and we determined that Wood was at a pivotal point in its journey," Sparta Capital's letter, which was signed by chief investment officer Tuil, said. 

However, the sale made no difference to Wood's share price, the letter noted. On Wood's Nov. 22 capital markets day, Sparta said it expected the company to announce a share buyback now that its debt had shrunk, but was disappointed. 

"After such a multi-year period of under-delivery, words will set the scene, but only action will drive a change in perception; a change long overdue and which all your stakeholders deserve," the letter said. 

Wood's low share price and decreased costs make it "vulnerable to takeover," the letter said. 

"We consulted extensively with shareholders regarding the most appropriate use of proceeds from the sale of Built Environment Consulting and the most appropriate leverage range for the company," the Wood Group spokesperson said. 

"We believe that the approach set out at our recent capital markets day with a focus on driving sustainable free cash flow is the right one."


($1 = 0.8201 pounds)


 (Reuters - Reporting by Nell Mackenzie; Editing by Amanda Cooper, Kirsten Donovan and David Evans)

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