Union Gas Holdings has entered into a sale and purchase agreement (SPA) on August 24 with Union Energy Corporation (UEC) to acquire assets owned by UEC for a purchase consideration of $75 million.
The SPA follows a memorandum of understanding (MOU) signed between the two companies to negotiate the deal in June 2020.
The assets include the entire issued and paid-up share capital for three companies - Sembas (Asia) Trading, Semgas Supply, and Summit Gas Systems. In addition, UEC will also sell 71 commercial vehicles owned by Semgas (S) and Choon Hin Gas Supply, both of which are wholly-owned subsidiaries of UEC, to Union Gas.
In its filing to SGX on August 25, Union Gas states the rationale for the acquisition includes expansion of the group's liquified petroleum gas (LPG) distribution business, yertical integration of its supply chain and reduced dependence on the UEC Group, as well as to maintain competitiveness.
UEC currently holds 12.6% shareholding in Union Gas. Union Gas chairman Teo Kiang Ang and CEO Teo Hark Piang also respectively hold 61.89% and 12.55% stakes in UEC.
To that end, the proposed acquisition is classified as an “interested person transaction” according to the Singapore Exchange Securities Trading (SGX-ST) listing rules and will be subject to the approval of the shareholders of Union Gas at an extraordinary general meeting to be convened.
In addition, Semgas Supply, which currently holds a 1.98% shareholding in Union Gas, intends to dispose all of its shares in the company prior to completion, in line with the Companies Act.
The consideration of $75 million was arrived at after taking into account the assets of the target companies, their future revenue and growth as well as potential synergies between the companies and Union Gas’ LPG distribution business.
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$14 million of the consideration will be satisfied in cash, while the remaining $61 million will be satisfied through the allotment of 88.6 million ordinary shares in Union Gas at an issue price of 68.81 cents per share.
The cash portion of the consideration will be funded through Union Gas' internal resources.
The transaction is scheduled for completion by Feb 28, 2022.
Based on UEC’s unaudited financial statements for the 1HFY2021 ended June, the net asset value of the target companies and the commercial vehicles was approximately $32.6 million, while net profits attributable to the assets for the period stood at $8.7 million.
Pro forma financials based on Union Gas’ FY2020 audited results indicate that the transaction will result in a decrease in net tangible assets (NTA) per share from 16.71 cents to 15.75 cents, while earning per share (EPS) will increase from 6.06 cents to 12.64 cents.
As at 9.18am, shares in Union Gas are trading up 7 cents or 8.81% higher at 86.5 cents.
Photo: Union Gas Holdings
