Investor Body Seeks Clarity Ahead of Shareholder Vote
The Securities Investors Association (Singapore) (Sias) has raised concerns regarding Sembcorp Marine’s (Sembmarine) proposed merger with Keppel Offshore & Marine Ltd (KOM). The questions, issued on Tuesday (Feb 7), precede Sembmarine’s extraordinary general meeting (EGM) scheduled for next Thursday (Feb 16), where shareholders will vote on the deal.
The merger, first announced in April and revised in October, involves Sembmarine acquiring KOM at a 46:54 equity-value exchange ratio. Sembmarine plans to issue 36.85 billion shares to Keppel, resulting in Sembmarine shareholders owning 46% of the enlarged entity, while Keppel shareholders will receive 49% of Sembmarine shares in specie and retain 5%.
Financial Implications and Risks
Sias queried Sembmarine on the financial terms of the deal, including the independent financial adviser’s (IFA) dismissal of the net asset value approach. The investor body also requested an estimate of the goodwill generated by the acquisition and questioned the risk of goodwill impairment.
“Is Sembmarine assuming all the market and execution risks while paying Keppel upfront for expected benefits of the merger?” Sias asked.
The EGM circular revealed that Sembmarine’s net tangible assets (NTA) stood at S$3.8 billion, while KOM’s restructured group had a pro forma NTA of S$0.86 billion as of Dec 31, 2021. The issuance of new shares would dilute the NTA per share and potentially result in substantial goodwill and intangible assets for the enlarged group.
Sias also questioned when Sembmarine might be able to declare meaningful dividends, given the expected enlargement of its share capital to 68.2 billion shares if the merger proceeds.
Board Accountability and Leadership Continuity
Sias expressed concerns about board reconstitution following the merger. All but one of Sembmarine’s current directors will retire, and KOM’s CEO, Chris Ong, will lead the enlarged entity.
“Does this lack of continuity undermine accountability for decisions leading up to the acquisition?” Sias queried. The investor body also sought assurances on the composition of the new board and the departing directors’ confidence in the merger’s success.
Sias questioned whether Sembmarine’s board had critically assessed management’s performance over the past 2-5 years and whether they were confident in the management’s ability to navigate the competitive market as a standalone entity if the merger fails.
Virtual EGM and Transparency Concerns
Sias raised issues regarding the decision to hold the EGM virtually as a Covid-19 precaution. The investor body pointed out that this decision may not align with current Ministry of Health guidelines.
“What measures are in place to ensure shareholders’ questions during the virtual EGM are adequately addressed before voting?” Sias asked.
Market Reactions and Future Outlook
Following Sias’ queries, Sembmarine’s shares fell 0.7% to close at S$0.139 on Tuesday, while Keppel shares dropped 1% to S$7.11.
With shareholder concerns mounting, the upcoming EGM vote will be critical in determining the future of Sembmarine and its proposed merger with KOM.
