Asset/portfolio management

Sembcorp Moves To Acquire Rival Keppel O&M

The acquisition plan supplants earlier merger agreement with new terms and a potential faster timeline for the combination.

A recent look at the Vito topsides under construction at Sembcorp in Singapore.
A look at Shell's Vito topsides previously under construction at Sembcorp in Singapore.
Source: Shell

A proposed merger between Sembcorp Marine and Keppel O&M originally announced last April has given way to a proposed outright purchase of Keppel O&M by Sembcorp Marine for $3.2 billion. According to Sembcorp, the simplified transaction structure via a direct acquisition of Keppel O&M reduces consent and approval requirements and may reduce time to completion by up to 2 months.

The acquisition terms represent an 8% lower consideration with revised equity value exchange ratio of 46:54 (SCM:KOM) from the earlier 44:56 ratio. The revised structure and terms underscore the parties’ commitment to establish the entity at the earliest possible time to better seize opportunities in the improving industry conditions.

Since announcing the original proposed combination, conditions in the O&M sector have improved, as evidenced by the recent orders won by both companies. Sembcorp recently was awarded a $3.1 billion contract by Petrobras for the construction of FPSO P-82, while Keppel O&M secured a $2.8 billion award from the Brazilian producer for construction of FPSO P-83.

However, macroeconomic conditions have deteriorated at the same time amidst elevated levels of inflation and continued interest rate increases by major central banks, according to Sembcorp.

Besides the expected synergies, an enlarged Sembcorp Marine will be in a better position to compete against the global competition. Following the acquisition, the larger company would have a combined total net order book of almost $13 billion.

“With the proposed combination, we hope to preserve Singapore’s marine and offshore engineering ecosystem and the industry’s core capabilities developed over the decades by two homegrown companies that have become established global players,” said Tan Sri Mohd Hassan Marican, chairman of Sembcorp Marine. “An enlarged Sembcorp Marine is better positioned to advance Singapore’s O&M and maritime interests and augment the sector’s potential as a growth engine for the economy, providing jobs and business opportunities, as well as spearhead the nation’s expansion into the adjacent offshore renewables and new energy markets in tandem with the global transition to a low-carbon economy.”

The acquisition still requires shareholder approval from both companies and various regulatory approvals. While the acquisition requires majority approval of Keppel’s and Sembcorp Marine’s shareholders, no court approval is required. Keppel said that it intends to seek its shareholders’ approval in early December.