Steel prefabrication company BRC Asia yesterday made a pre-conditional offer to buy fellow steel player Lee Metal Group at an offer price of 42 cents for each share, or $199.3 million in total, with the aim of delisting the company.
The offer price represents a premium of 9.1 per cent to Lee Metal's last traded price of 38.5 cents on Nov 10 - the last full market day before the company announced the news, on being notified by certain shareholders of an unsolicited approach to acquire their shares.
The offer price is also 21.4 per cent higher than the stock's volume-weighted average price for the three-month period up to the last trading day.
BRC Asia said the two businesses are complementary, and sees potential synergies from the acquisition. These include cross-selling an enlarged customer base, economies of scale, improvement in productivity and cost efficiency, as well as the sharing of best practices.
The offer will also let minority investors in Lee Metal realise their investment, it added, noting that trading liquidity in the shares has been low. BRC Asia has received irrevocable undertakings from shareholders representing 48.06 per cent of Lee Metal's shares to accept the offer.
Its controlling shareholder Esteel Enterprise, which owns 72.94 per cent of BRC Asia, has also irrevocably undertaken to vote in favour of the voluntary conditional cash offer at an extraordinary general meeting.
Assuming full acceptance by Lee Metal shareholders, BRC will pay a total of $199.3 million, representing 62.2 per cent of its market capitalisation. The voluntary general offer will be funded by a shareholder loan from Esteel, bank borrowings and internal cash resources.
BRC aims to delist Lee Metal, as this will facilitate management and operational control over the company and its subsequent developments.
The offer is conditional on approval by the Competition Commission of Singapore, among others.
BRC Asia provides just-in-time reinforcing steel solutions to the construction sector in Singapore.
Lee Metal fabricates reinforcement steel products for the construction sector, including HDB and SMRT projects, and has a presence in Malaysia and Hong Kong too.
Its full-year net profit for last year tumbled 44 per cent to $7.5 million, despite a 6 per cent increase in revenue to $339 million. Its gross profit margins fell to 17.1 per cent, from 22 per cent in the previous year, owing to lower tonnages delivered for value-added components in the fabrication and manufacturing business.
It said in its results released on Tuesday that construction demand in both the public and private sectors is expected to improve this year.
But headwinds remain, including rising international steel prices owing to China's environmental controls on steel producers, and intense competition in Singapore's construction sector.
BRC Asia, meanwhile, said in its forecast that any improvement in construction demand will translate to more work for the construction supply chain, including the reinforcing steel industry, only in 12 to 18 months' time.
Calling it a "very difficult period", it said it expects profit margins to "remain rather challenging".
BRC Asia and Lee Metal shares last traded at $1.31 and 41 cents, respectively, on Tuesday. Trading in both stocks was halted yesterday, pending the announcement.