Saturday, August 6, 2011

2011 Merger of Sapuracrest Petroleum Bhd and Kencana Petroleum Bhd

Kuala Lumpur: The RM11.85 billion merger of Sapuracrest Petroleum Bhd and Kencana Petroleum Bhd is literally "one big approval" away before officially creating the country's largest oil and gas service provider by asset size.

The board of directors of SapuraCrest and Kencana yesterday approved the merger exercise, deciding to take up the offers made by special purpose vehicle (SPV) Integral Key Sdn Bhd (IKSB).

This leaves the need for both companies to secure at least 75 per cent shareholders nod as the next big hurdle before the deal goes through.

SapuraCrest and Kencana are expected to call for special shareholders' meetings to vote on the deal soon.

Overall, the companies are expecting the whole merger exercise that will create a new entity with some RM6 billion of assets to be completed by the first quarter of next year.
SapuraCrest and Kencana yesterday issued a statement each to say that their board of directors had decided to accept IKSB's offers.

"The board ... has resolved to accept the offer by IKSB to acquire the SapuraCrest business for a total consideration of RM5.87 billion," SapuraCrest said in its announcement to Bursa Malaysia yesterday.

"The board is not seeking other alternative bids to make an offer to acquire the SapuraCrest business," it added.

IKSB has offered to buy all the assets and liabilities of SapuraCrest and Kencana under a cash and share swap deal.

The SPV will pay almost RM5.98 billion or RM3 per Kencana share satisfied by the issuance of 2.5 billion new IKSB shares at RM2 apiece and a cash payment of RM968 million.

For SapuraCrest, IKSB will pay RM5.87 billion or RM4.60 per SapuraCrest share. This will be satisfied by the issuance of 2.5 billion new IKSB shares, also at RM2 apiece and a cash payment of RM875 million.

Kencana, in its announcement to Bursa Malaysia yesterday said that moving forward, there will be no assurance that the merged entity will be able to attain a higher or equivalent combined earnings.

This is after taking into consideration the cultural and management differences, possible customer overlap, and the additional borrowings amounting to about RM1.8 billion repre-senting the total cash payments, which will be incurred by IKSB pursuant to the merger offer.

"Notwithstanding the above, the management of Kencana Petroleum will work together with the management of SapuraCrest to realise potential synergies from the proposed merger, towards the continued growth and success of the merged entity," Kencana said.

Kencana and SapuraCrest posted a net profit of RM136.2 million and RM231.4 million respectively in their last financial year.

Once the deal is completed, IKSB will be listed on Bursa Malaysia's Main Market, in place of Sapura-Crest and Kencana.

Analysts estimate that the Sapura group founder Tan Sri Shamsuddin Abdul Kadir and his family will own slightly over a fifth of IKSB, and Kencana's Datuk Mokhzani Mahathir about 16 per cent.

Norwegian rig contractor Seadrill will also be a substantial shareholder given its current 23.6 per cent stake in SapuraCrest.

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