Singapore-listed EMS Energy Limited (EMS and together with its subsidiaries, the Group) announced Friday its plans to merge with Koastal Pte Ltd. and its subsidiaries (the Koastal Group), an Engineering, Procurement and Construction Management (EPCM) player, in a major share and cash transaction for $112.6 million (SGD 150.0 million).
EMS said it had entered into a non-binding Memorandum of Understanding (MOU) to acquire an investment holding company which will hold Koastal Group – if approved by the authorities and EMS shareholders – will transform the enlarged group into an integrated offshore and marine (O&M) services provider which can provide manufacturing and fabrication for larger and higher-value projects.
EMS, a provider of engineering O&M solutions, customized equipment and contract manufacturing, intends to satisfy the $112.6 million (SGD 150.0 million) via the issue of $94.3 million (SGD 125.7 million) worth of new EMS shares at $0.2589 (SGD 0.345) each and a cash payment of $18.3 million (SGD 24.3 million) to the vendors, namely Ting Teck Jin (Ting) and Ting Teck Seh. Koastal Group is valued at $143.1 million (approximately SGD 192.8 million) by an independent valuer, Jones Lang LaSalle Corporate Appraisal and Advisory Limited.
Ting, executive chairman and CEO of EMS, is EMS’s single largest shareholder.
Koastal Group is principally engaged in providing engineering, procurement and construction management (EPCM) services, as well as installation, commissioning and rig and marine equipment repair services to marine and offshore oil and gas (O&G) companies. It is also engaged in trading as a distributor and agent of products for the marine and offshore O&G companies.
EMS and Koastal Group have worked closely since 2010, leveraging on their different services and strengths to tender for and implement larger marine, O&G projects.
EMS has outlined a strategy to take on larger O&G projects and improve operational and internal efficiencies. It has also started work on a larger waterfront facility in Tuas, Singapore, expected to be completed in 2016. The proposed merger will allow EMS to scale up the value chain more aggressively, improve efficiencies, diversify its revenue streams and capture higher-margin, larger-scale projects.
Prior to the merger, EMS will first consolidate its shares on the basis of every 15 existing shares to 1 consolidated share (Share Consolidation) which will reduce its share capital base from 1,480,709,604 to 98,713,973. This will help raise the profile of the Group amongst institutional investors and increase research coverage. Following the Share Consolidation, EMS will issue up to 364,446,896 new consolidated EMS shares at $0.2589 (SGD 0.345) each, which will enlarge EMS’ total share capital base to 463,160,869 consolidated shares.
The enlarged business after the merger will result in a stronger financial position with Net Tangible Assets (NTA) per share increasing from $0.0143 (SGD 0.0191) to $0.0726 (SGD 0.0967) and Earnings Per Share (EPS) increasing from $0.0005 (SGD 0.0006) to $0.0245 (SGD 0.0326). The business prospects are expected to increase and will enhance the investors’ interest and confidence in the enlarged group. It will also allow EMS to tap the capital markets more effectively while improving the liquidity of its shares.
Koastal Group recorded revenue of $69.9 million (SGD 93.1 million) with a net profit of $10.7 million (SGD 14.3 million) for the financial year ended Dec. 31, 2014 based on the unaudited pro forma financial information. Its total assets as at Dec. 31, 2014 stands at $93.5 million (SGD 124.5 million).
Ting said, “The proposed acquisition will accelerate EMS’ strategic shift up the value chain, transforming the Group into an integrated one-stop solutions provider for the marine and offshore oil and gas industries. We will harness the synergies to fuel a new phase of growth that will enhance long-term shareholder value.”
Prior to the completion of the proposed transaction, Koastal Group will undergo a restructuring exercise that will include the disposal of its equity interest in EMS, NVS Holdings Pte. Ltd., NVS (Singapore) Pte. Ltd., and Nosco-Vinalines Ship Repair Company.
The acquisition is subject to approval by the Singapore Exchange and EMS shareholders at an extraordinary general meeting to be convened.