John Wood Group, which made its name as a North Sea engineering services company and now operates around the world, has, at the time of writing, received no fewer than four takeover proposals from Apollo Global Management, the US private equity outfit.
Wood said on Tuesday that it was “minded to reject” the latest proposal from Apollo, declaring that it “continues to undervalue” the company, but said it would engage further with its suitor as well as its shareholders. Shares in Wood made further ground on Tuesday and closed up 12.3 per cent on the day, increasing its stock market capitalisation to north of £1.5 billion. The share price was broadly unchanged yesterday.
The latest developments at Wood came shortly after Edinburgh-based oil and gas company Capricorn Energy saw a second merger attempt fall apart, with its proposed deal with NewMed of Israel coming unstuck following a campaign led by activist investor Palliser Capital.
Less than six months earlier, Capricorn had seen a proposed tie-up with Tullow Oil – a £1.5 billion “merger of equals” – fail amid shareholder dissent, including from Palliser.
It is hard to avoid the conclusion that there will be more twists and turns in the stories of both Wood and Capricorn in the weeks and months to come. Apollo would seem to be extremely keen to land its target, albeit it remains to be seen if it will return with a further approach for Wood. There is also the prospect of the Apollo interest flushing out other suitors.
At Capricorn, the board now includes six Palliser appointees after the shareholder revolt led to the exit of seven directors, including former chief executive Simon Thomson, with the changing of the guard ultimately resulting in the new board advising investors to vote against the NewMed combination. NewMed, for its part, agreed to terminate the deal.
At the same time as the drama was playing out in the boardrooms of Capricorn and Wood, a deal was being done that could result in the acquisition of another listed Scottish business.
Devro, the Glasgow-based manufacturer of collagen skins for the food industry, is in the process of recommending a takeover by Saria Nederland BV in a deal that values the Scottish company at around £564m. The offer, which has been recommended by the Devro board to its shareholders, is an improvement on the terms of the original approach from Saria in November. Saria manufactures raw materials based on animal by-products and organic residues for the agriculture, energy, food and pharmaceutical sectors.
“The loss of Scottish listed companies has been a trend for a couple of decades, but seems to have accelerated more recently,” Colin McLean, director of SVM Asset Management in Edinburgh, told The Herald. “There are more takeovers going on now at a UK level, with the pound still quite weak and UK stock market valuations low. By some measures, valuation of UK small and mid-cap listed businesses is at its lowest for 20 years relative to the rest of the world.
“The UK has also a fairly accommodating market for change of control.”
Takeover deals are of course very much the stuff of life at the top end of the corporate world. But should Wood and/ or Capricorn follow Devro and be bought out by or merge with another company, there could be significant ramifications, not only for investors in and employees of the respective companies, but the wider Scottish economy.
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For one, the prospect of a company being taken over automatically leads to concern over jobs and the location of headquarters.
In instances where a new owner is a private equity player, there can often be fears that cutting costs will be at the top of their agenda.
This might result in a reduction of jobs or even, where the business being taken over has multiple locations, a consolidation of the number of premises which it operates.
Moves such as these are unfortunate for the staff affected, and sometimes for companies in local supply chains. There can be knock-on effects, too, for the small businesses that cater for employees in these areas; cafes, convenience stores and newsagents, for example.
For listed companies, a takeover that results in a company returning to private hands can lead to the reduction in demand for local professional services. It can also be argued that the loss of a listed business is a knock to a country’s corporate prestige.
Having once been the domicile of many major listed concerns, the number of public companies of noteworthy size based in Scotland has fallen sharply in the last three decades.
Scottish & Newcastle, ScottishPower, and Kwik-Fit are among the major Scottish concerns that have been de-listed and taken into foreign ownership over the last 30 years.
That period has also seen Scotland’s historical strength as a banking centre has become greatly diminished in the wake of the financial crisis of 2008 and 2009.
Edinburgh-based Royal Bank of Scotland has been scaled back dramatically and is now essentially run from London under the name NatWest.
Bank of Scotland is now part of Lloyds Banking Group, also headquartered in the UK capital. And Clydesdale Bank can no longer be seen as Glasgow-based following its merger with Virgin Money.
More recently, the last two years have seen leading listed Scottish players Aggreko and Stagecoach lose their independence to companies based outside Scotland.
With Devro and possibly Capricorn and Wood now poised to follow suit, the continuing erosion of Scotland’s presence on the stock exchange may be seen in some quarters as a sign of economic demise. Especially as there is no sign of them being replaced on the market by Scottish firms of noteworthy potential any time soon.
However, all is not necessarily lost. Although Mr McLean notes that it is “very difficult for new companies listing to get investor attention, with only sponsoring brokers being interested unless a company has a unique proprietary position”, he declared: “Scotland is building new potential for business creation in sectors such as biotech and greentech, driven by the major universities.
“Glasgow University’s Advanced Research Centre for example, is bringing different disciplines together on new technologies and should be a catalyst for regeneration. I think there are similar things going on in Scotland’s other major universities.”
Mr McLean added: “I think Scotland may be faring no worse than most parts of the UK outside London. However, one of the changes is less about listed businesses than business locations.
“Lockdown has given an opportunity for regeneration of Scottish towns, such as those in Ayrshire, Stirlingshire and Fife which still allow travel to city locations one or two days per week.
“In the 1970s and even 1980s there were many US plants acting as anchor institutions in East Kilbride, Greenock, Dundee etc that have moved offshore.
“Building on hybrid working to anchor more businesses in Scottish towns would, I think, be a helpful policy.”