Dubai's Sidara weighs lowering Wood Group offer after UK regulator's probe, FT reports

Dubai-based Sidara is reportedly considering reducing its takeover bid for Wood Group, citing concerns stemming from a UK Financial Conduct Authority (FCA) probe into the oilfield services provider's accounting practices and potential legal exposure. This re-evaluation, also influenced by Sidara's frustration over Wood Group's delayed 2024 account filings, introduces uncertainty for the previously proposed offer, which included an approximate £242 million component, as Sidara approaches its July 28 deadline to finalize its bid.

Analysis

Sidara's potential reduction of its takeover offer for Wood Group introduces significant uncertainty and downside risk to the proposed transaction. The reconsideration is reportedly driven by material concerns over an ongoing Financial Conduct Authority (FCA) investigation into Wood Group's accounting, which stems from an internal review of specific contracts and charges. This regulatory probe, coupled with Sidara's noted frustration over delays in Wood Group's 2024 account filings, signals a heightened perception of potential legal and financial liabilities discovered during due diligence. The original April proposal, valued at approximately £242 million, now appears precarious. With a looming July 28 deadline for Sidara to submit a firm offer, withdraw, or seek an extension, the M&A outcome is now contingent on the perceived severity of these fundamental accounting issues, creating a negative overhang on Wood Group's valuation.

Key Decisions for Investors

• Investors engaged in merger arbitrage should re-evaluate the deal's probability of success, as the FCA probe and potential bid reduction significantly increase the risk of the transaction failing or being repriced downwards.
• Long-term investors in Wood Group should focus on the underlying accounting issues and the FCA investigation, as these represent a fundamental risk to the company's operational integrity and financial transparency, independent of the takeover outcome.
• Traders should anticipate heightened volatility in Wood Group's stock leading up to the July 28 deadline, as the price will be highly sensitive to any announcement from Sidara regarding a revised offer, an extension, or a complete withdrawal.