Initially, both SCM and KOM’s enterprise value in the combined entity wil be 50:50 but SCM’s shareholders will be entitled to 44% of the combined entity. This is because of the Equity Value Exchange Ratio determined by DBS.
Sembcorp Marine’s (SCM) management has taken pains to explain the rationale for the proposed combination of its business with that of Keppel Offshore & Marine (KOM). Investors have, by and large accepted the rationale and possibly necessity of such a combination. What investors are questioning is how the investment bankers got to the ratio of SCM’s investors being given 44% of the combined entity versus 56% to Keppel Corp (KOM’s shareholder). Both investors and market observers argue that SCM’s shareholders are likely to be diluted.
According to the latest explanations by SCM, KOM will be a pared down company, without its legacy rigs, Dyna-Mac Holdings (which is trading at a 5-year high), and Floatel. Keppel has ‘equitised’ KOM’s $1.8 billion of perpetual securities. KOM has also paid Keppel $500 million and will take a loan of “up to $500 million” from DBS Bank. This will boost KOM’s enterprise value as enterprise value is the sum of a company’s market capitalisation and debt, less cash. (KOM’s market cap valuation is likely to be its portion of Keppel Corp’s market cap as KOM is not listed.)
