UK-based global engineer AMEC says it reached agreement on Jan. 13 to acquire contractor Foster Wheeler AG in an estimated $3.2-billion stock-and-cash deal that would be the industry's largest since contractor CB&I moved in 2012 to purchase The Shaw Group Inc. That transaction was completed last year.

The latest deal would be a culmination of both firms' hunt for a strategic partner to expand corporate reach geographically and deeper into the oil-and-gas sector.

Foster Wheeler has been "in play" since last fall, says Maxim Sytchev, engineering and construction sector analyst for Dundee Securities, Toronto.

Sytchev notes that firms including CB&I, Fluor Corp., Sinochem and Petrofac had been touted as possible suitors.

In addition, he says, "AMEC has been pounding the pavement for some time now in search of a suitable target; the company’s $1.15-billion bid for U.K.-based construction rival Kentz was rejected last August."

Under the terms of the transaction, which is still subject to shareholder and regulatory approvals and is not expected to close until the second half of the year, Foster Wheeler shareholders would receive 0.9 AMEC shares and $16 in cash, or a total value of $32, for each Foster Wheeler share.

Foster Wheeler would pay a one-time dividend of 40 cents per share prior to closing.

AMEC says it expects "double-digit earnings accretion" within the first 12 months of the deal's completion, along with $75 million in annual "cost synergies."

AMEC is the fifth-largest firm on ENR's list of the Top 150 Global Design Firms, with $4.875-billion in 2013 engineering revenue. The company reports that 57% of its engineering revenue is in the industrial and petroleum sector and 10% in power.

With its main management office in Hampton, N.J., Foster Wheeler ranks at No. 83 on ENR's list of the Top 250 Global Contractors, with $3.4-billion in total global revenue. About $2.6 billion of that comes from outside the U.S.

The deal would create a corporate giant of nearly 42,000 global employees, with "industry leading engineering and project management expertise," says AMEC.

"The transaction is expected to enhance AMEC’s positioning across the oil & gas value chain and provide it exposure to growing markets in Latin America," says Sytchev.

But Jamie Cook, who heads E&C sector analysis for Credit Suisse, says the deal may not be so great for Foster Wheeler shareholders.

The deal "implies only a 12.8% premium" to Foster Wheeler's $28.73 share price on Nov. 26, equating to a valuation of about 9.9 times EBITDA (earnings before interest, taxes, depreciation and amortization), she says.

"We are surprised [Foster Wheeler] would sell at only a modest premium relative to its recent stock price given the pending North American energy infrastructure cycle to come," she says.

"We believe this implies [the firm] has been on the block for some period of time and is out of alternatives," she says, adding that the valuation may also signal that Foster Wheeler is not in a competitive position in the North American energy infrastructure market and "is less optimistic on the cycle ahead."

Andrej Avelini, managing director of industry financial management firm EFCG, says, however, that compared to other comparable transactions, "10x EBITDA is a top quartile multiple. So it would appear that Foster Wheeler shareholders, at least from the relative valuation perspective, got a good deal."

He adds that "since a portion of the deal is in stock, it will ultimately depend on how the stock performs in the future, which has downside risk but also upside potential."

Avelini says that "it's interesting to see AMEC going back into hard construction after exiting that business a half-dozen years ago."

AMEC sold its interest in former New York City-based building contractor Morse Diesel in 2004 after years of low margins and losses following that firm's acquisition in 1995.