United Envirotech, Memstar tumble on acquisition plan

REUTERS - Shares in United Envirotech tumbled as much as 13 per cent to a four-week low on Tuesday after the company announced its plans to acquire assets from Memstar Technology, whose shares were headed for their biggest daily decline in nearly five months.

United Envirotech, a membrane-based water treatment solution provider, agreed to acquire certain assets from Memstar and a 100 per cent stake in Memstar Pte. Ltd, a wholly owned subsidiary of Memstar, for a total of $293.4 million.

The acquisition will help United Envirotech become an integrated solution provider in Singapore's competitive water treatment market, analysts said. But its share price dropped to as low as $0.89, before paring some losses to $0.96 by 10.24am Singapore tiem.

"The acquisition is mainly funded by shares, so even though in the long term it will be positive, in the near term you'll have to bear with a huge EPS (earnings per share) dilution,"said Tan Ai Teng, an analyst at DBS Vickers.

United Envirotech plans to fund 25 per cent of the deal with cash and the rest through the issuance of about 200.1 million shares, or nearly a third of its outstanding shares, at $1.10 each.

Shares in Memstar, which produces polyvinylidene fluoride hollow fibre membrane and membrane products, plunged as much as 8 per cent to $0.091 as trading volume shot up to more than double the daily average in the past five days.

"The company is going to end up as a shell without any operation," said Carey Wong, an analyst at OCBC Investment Research. "Common shareholders are at the mercy of owners on whether they will get cashed out."

United Envirotech is already Memstar's second-largest shareholder, with a 13.18 per cent stake, Reuters data showed.