SINGAPORE - The Securities Investors Association (Singapore), or Sias, has issued a set of questions to Sembcorp Marine over its proposed combination with Keppel Offshore & Marine.
The queries on Tuesday – “to help Sembmarine shareholders better understand the proposed acquisition and to address their concerns” – come ahead of an extraordinary general meeting (EGM) on Feb 16, during which shareholders will vote on the deal.
Sias had 10 questions for Sembmarine, covering the financial terms, board accountability and the conduct of the EGM.
The merger of the two companies was announced last April.
The terms of the deal were later revised in October such that Sembmarine would directly acquire Keppel O&M from Keppel Corp at a revised equity value exchange ratio of 46:54. Sembmarine would issue 36.85 billion shares to Keppel to acquire Keppel O&M.
Sembmarine shareholders would own 46 per cent of the enlarged entity, with Keppel holding the remaining 54 per cent – out of which it will retain 5 per cent and distribute 49 per cent of the enlarged Sembmarine share base in specie to its shareholders.
In relation to the financial terms, Sias asked about the independent financial adviser disregarding the net asset value approach, and asked Sembmarine to provide an estimate of the amount of goodwill that will be created from the acquisition. The shareholder body also asked: “How confident is management that the goodwill will not be impaired in the near future? Is there a risk that Sembmarine is paying Keppel upfront all the expected benefits of the recovery and the merger while holding on to all the execution and market risks?”
According to Sembmarine’s EGM circular, Sembmarine group had net tangible assets (NTA) of $3.8 billion.
Meanwhile, the restructured Keppel O&M group is asset-light, and had a pro forma NTA of $860 million as at Dec 31, 2021.
The independent financial adviser noted that the issuance of 36.85 billion shares would mean the NTA of the enlarged group on a per-share basis “will be diluted significantly after the completion of the proposed combination”.
It added that the enlarged group may also record ”a significant amount of goodwill and intangibles”.
Sias also asked when Sembmarine expects to be in a position to declare a “meaningful dividend” given that it would have an enlarged share capital of 68.2 billion shares if the acquisition is approved.
In terms of board accountability, Sias noted that the board of Sembmarine would be reconstituted, with all but one of the current directors retiring.
Meanwhile, the current chief executive of Keppel O&M, Mr Chris Ong, would be appointed CEO of the enlarged entity.
“Is there a lack of continuity and where is the accountability given that all the major decision-makers of Sembmarine leading up to the acquisition of Keppel O&M will no longer be in the enlarged entity after the acquisition?” Sias said.
“Given that all but one of the directors of Sembmarine have indicated that they would leave the board if the acquisition is successful, what assurance can the board give to the shareholders on the composition of the new board? Do the directors feel that the acquisition of Keppel O&M will turn out to be successful?”
Sias noted that the circular included statements on potential difficulties for Sembmarine if the proposed combination failed.
While Sembmarine provided clarification on Monday, Sias also sought further details on the company’s actions to ensure its continued performance.
“Has the board critically reviewed the performance of management in the past two to five years? If so, is the board fully satisfied and confident that the management team is able to navigate the competitive landscape as a standalone entity?” Sias said.
It added: “As part of a robust risk-management framework, did the board proactively seek the continued support of its financiers and significant shareholder regardless of the outcome of the EGM vote? If not, why not?”
Sias also questioned the decision to hold the EGM virtually, which Sembmarine said was “a precautionary measure due to Covid-19”.
“The EGM does not appear to be in line with the current guidelines set by (the Ministry of Health) and the Government?” Sias said. “What are the safeguards to ensure that all relevant questions asked during the virtual EGM are answered before the resolution is put to vote?”
Sembmarine shares closed at 13.8 cents on Wednesday, down 0.72 per cent, while Keppel closed at $7.08, down 0.42 per cent.