Date: February 7, 2023
To: Sembcorp Marine Limited
Through: Mr. Wong Weng Sun, President & Chief Executive Officer
Questions to Sembcorp Marine Limited (“SCM”)
On 27 April 2022, SCM announced the details of the proposed combination with a restructured Keppel Offshore & Marine Ltd (“KOM”) to create a “premier global player in offshore renewables, new energy and cleaner offshore and marine solutions”.
Subsequently on 27 October 2022, the transaction was revised in which SCM will now directly acquire 100% of KOM from Keppel Corporation (“Keppel”) and SCM will not proceed with the scheme of arrangement. There will no longer be a Combined Entity and there will not be a one-for-one share exchange. Post completion of the proposed transaction, KOM becomes a wholly owned subsidiary of SCM.
The exchange ratio has been adjusted slightly from 44:56 to 46:54, with Keppel receiving 54%. The consideration has been reduced by $378 million, decreasing from $4.87 billion to $4.495 billion.
As part of the transaction, KOM will take on additional debt to pay Keppel $500 million in cash prior to its sale to SCM.
In order to help SCM shareholders better understand the proposed acquisition and to address their concerns, SIAS has prepared the following questions for SCM:
Question 1: In disregarding the “NAV approach”, how robust is the IFA’s opinion given the seller-appointed IFA had carried out a P/NAV comparison of the comparable companies?
Question 2: What is the estimated amount of goodwill that will be created as a result of acquiring KOM?
Question 3: How confident is management that the goodwill will not be impaired in the near-future? Is there a risk that SCM is paying Keppel upfront all the expected benefits of the recovery and the merger while holding on to all the execution and market risks? For reference, shareholders should review the material risk factors over 37 pages in Appendix C (Risk factors).
Question 4: In addition, the board of SCM will be re-constituted (with all but one current SCM director retiring from the board). Mr Chris Ong Leng Yeow, the current CEO of KOM, will be appointed as the new CEO of the enlarged SCM. Is there a lack of continuity and where is the accountability given that all the major decision makers of SCM leading up to the acquisition of KOM will no longer be in the enlarged entity after the acquisition?
News media has picked up on the fact that the company has stated that “no assurance that as a standalone entity, the SCM Group would continue to receive the necessary support from its banks, financiers and significant shareholder, Temasek“. The company came out with a clarification on 6 February 2023 urging shareholders to read the EGM circular to get a complete picture of the outlook if the acquisition is voted down.
Question 5: Has the board critically reviewed the performance of management in the past 2-5 years? If so, is the board fully satisfied and confident that the management team is able to navigate the competitive landscape as a standalone entity?
Question 6: Given that all but one of the directors of SCM have indicated that they would leave the board if the acquisition is successful, what assurance can the board give to the shareholders on the composition of the new board? Do the directors feel that the acquisition of KOM will turn out to be successful?
Question 7: As part of a robust risk management framework, did the board pro-actively seek the continued support of its financiers and significant shareholder REGARDLESS of the outcome of the EGM vote? If not, why not?
An avalanche of shares
Some SCM shareholders are concerned that an avalanche of newly issued SCM shares may potentially flood the market once Keppel distributes the consideration shares to their shareholders. Out of the 36.85 billion new shares to be issued, 26.3 billion will be distributed to Keppel shareholders (other than Temasek). Temasek will receive 7.1 billion while Keppel will retain 3.4 billion new shares.
Question 8: What levers are available to SCM to help to facilitate the market to function efficiently post-DIS by Keppel and that the DIS will not distort the share price of SCM?
Question 9: With 68.2 billion issued shares if the acquisition is approved, when will the company be in a position to declare a meaningful dividend?
Conduct of EGM
The EGM will be held by virtual means “as a precautionary measure due to COVID-19“. Many shareholders have expressed their surprise and disappointment that SCM has chosen the extremely cautious option of holding a virtual meeting for such an important EGM.
Question 10: The EGM does not appear to be in line with the current guidelines set by MOH and the government? What are the safeguards to ensure that all relevant questions asked during the virtual EGM are answered before the resolution is put to vote? Is the company appointing an independent moderator to manage the online Q&A?
President and CEO