SINGAPORE - Catalist-listed EMS Energy said it plans to merge with engineering, procurement and construction management firm Koastal Group in a cash-and-scrip deal valued at $150 million to diversify its earnings stream.
The enlarged group will become an integrated offshore and marine (O&M) services provider which can provide manufacturing and fabrication for larger and higher-value projects.
EMS Energy announced last Friday after the market closed that it had entered into a non-binding memorandum of understanding to acquire an investment holding company which will hold Koastal and its subsidiaries. Koastal Industries is a controlling shareholder of EMS as it holds a 33.46 per cent stake in EMS.
EMS and Koastal Group have worked closely since 2010, leveraging on their different services and strengths to tender for and implement larger marine, O&G projects.
"The proposed merger will allow EMS to scale up the value chain more aggressively, improve efficiencies, diversify its revenue streams and capture higher-margin, larger-scale projects," EMS said in a statement. "The target group has consistently been a major customer of (EMS) over the last three financial years."
Shares of EMS rose to 2.5 cents on Monday morning before easing slightly to 2.4 cents, up 0.1 cent or 4.3 per cent, at about 1:10pm.
Koastal is owned by Ting Teck Seh and Ting Teck Jin, who is EMS executive chairman and CEO and also its biggest shareholder with a stake of 33.46 per cent.
EMS will pay $24.3 million in cash (to Ting Teck Jin and Ting Teck Seh) and the company will also issue $125.7 million worth of new shares at 34.5 cents each.
Koastal Group was valued at US$143.1 million (approximately $192.8 million) by an independent valuer, Jones Lang LaSalle Corporate Appraisal and Advisory Limited. It recorded revenues of $93.1 million and a net profit of $14.3 million for the financial year ended Dec 31, 2014.
Ahead of the merger, EMS will first consolidate its shares on the basis of every 15 existing shares to one consolidated share, which will reduce its share capital base from about 1.48 billion to around 98.71 million in a bid to "raise the profile of the group amongst institutional investors" and boost research coverage. Following the share consolidation exercise, EMS will issue up to 364.44 million new consolidated EMS shares at 34.5 cents each.
Prior to the completion of the proposed merger, Koastal Group will undergo a restructuring exercise that will include the disposal of its equity interest in EMS, NVS Holdings, NVS (Singapore), and Nosco-Vinalines Ship Repair Company.