SembCorp Marine stock hits 52-week high on optimism over Keppel O&M deal

SINGAPORE - The stock of SembCorp Marine (Sembmarine) rose to hit its highest level in a year on optimism that

the recently revised merger terms with Keppel Offshore & Marine (Keppel O&M)

would get the deal over the threshold for shareholder approval.

The shares traded at around 12.8 cents most of the day before ending the session up 3.2 per cent at 13.1 cents. Some 335.3 million shares changed hands.

This comes just days after Sembmarine and Keppel Corp announced revised buyout terms for the former’s takeover of Keppel O&M.

Instead of a one-for-one share exchange between Sembmarine and the combined entity, Sembmarine will now directly buy all of Keppel O&M’s stake from Keppel Corp for $4.5 billion, excluding legacy rigs and associated receivables.

This revised deal is $378 million lower than the one-for-one share exchange option previously unveiled. A key revision was the 44:56 (Sembmarine:Keppel) equity exchange ratio, which some Sembmarine shareholders felt was unfair.

Under the revision, this equity exchange ratio was adjusted to become more favourable to Sembmarine at 46:54, meaning Sembmarine shareholders get a slightly larger 46 per cent share of the combined entity. Keppel goes away with a reduced 54 per cent.

Analysts said this revision has significantly increased the chances of the merger receiving shareholder approval at a yet-to-be-announced Sembmarine extraordinary general meeting later this month.

“The revision is slightly more favourable in terms of the merger agreement, simplified structure, which provides higher certainty and visibility of the merger deal pushing through,” said the director of a dealing team at a bank-linked broking house.

“The perception now is that Sembmarine is taking over Keppel O&M, rather than an unequal merger of two entities. Both Keppel and Sembmarine may have found a win-win solution.”

Analysts also pointed to recent contract wins by both Sembmarine and Keppel O&M, which together would boost the combined entity’s orderbook to more than $18 billion.

The revision of the merger terms has also prompted analysts to take a more positive view of the Sembmarine deal.

CGS-CIMB Research analysts Lim Siew Khee and Izabella Tan recently upgraded the stock with a target price of 19 cents, based on a 1.6 times price-to-book value or average trading band from 2016 to the present.

UOB Kay Hian maintained its buy on Sembmarine, with a target of 15.6 cents.