Temasek looks to takeover Keppel with a S$4.1 billion bid for another 30.55% shares

As trading in Keppel Corporation Limited shares was halted on 18 October, Temasek Holdings announced its intentions to make a partial offer to acquire an additional 30.55% of shares in Keppel at S$7.35 per unit. Trading of Keppel shares resumed on Tuesday.

Combined with Temasek’s direct holding of 20.45% shares in Keppel, this would bring their total shares up to 51% if the deal goes through, making Temasek the majority shareholder. On top of that, there are certain independently managed and operated subsidiaries of Temasek that have about 1.04% of Keppel shares as of 18 October. That would bring the total shares under Temasek to 52.04%.

The offer of S$7.35 per share for the 554.9 million shares to be acquired makes this a S$4.08 billion deal. The offer price is a premium of almost 26% over the last traded price of Keppel shares of S$5.84 on 18 October. It is also 21.09% higher than the three month volume weighted average price of S$6.07 before and including the last traded date.

Mr Tan Chong Lee, President, Temasek International and Director of the Offeror, said, “The Partial Offer reflects our view that there is an inherent long term value in Keppel’s businesses, notwithstanding the challenges presented by the current business and economic outlook.”

He added, “The partial offer can only be made after the Pre-Conditions have been fulfilled or waived and this may take several months. For the Partial Offer to be successful, it will require both majority approval by shareholding of the votes cast and acceptances of not less than 30.55% of the total issued Shares.”

Pre-conditions of the offer include obtaining approvals from domestic and foreign regulatory agencies. The offer is also subject to Keppel’s financial performance and conditions not deteriorating meaningfully over the period and obtaining the consent of counterparties to contracts which Keppel is party to.

The offer will only be made if each of those conditions are satisfied or waived by 21 October 2020, said the statement.

Morgan Stanley Asia (Singapore) has been appointed as the sole financial adviser to Kyanite on this partial offer.

Possible merger of Keppel and Sembcorp

Analysts have speculated that Temasek’s offer to buy Keppel shares is a prelude to the consolidation of Singapore’s offshore and marine (O&M) sector, referring to the potential merger of Keppel with another O&M business, Sembcorp Marine which had been attempted back in 2015.

The two companies, Keppel and SembMarine, have been battling a prolonged downturn in the last five years as oil prices plummeted, leading analysts to speculate of a possible merger.

Shares of Sembcorp Marine (SembMarine) rose to by 11.6% to S$1.34 on Monday when Temasek’s offer was announced, while shares in parent company Semborp Industries (SCI) rose 10% to S$2.29.

Apart from falling oil prices, Keppel and SembMarine were among some companies caught up in the Brazil corruption probe as well. In 2017, Keppel paid S$422 million to end the probe into bribes made to Brazilian firm Petrobras to secure contracts there.

Keppel USA pleaded guilty while its parent, the Singapore-based Keppel Offshore & Marine, entered into a deferred prosecution agreement with the government.

In a statement on Monday (21 October), Temasek said it does not intend to delist the company, keeping it on the Singapore Exchange, adding that the offer is an opportunity for Keppel shareholders to monetise some or all of their holdings at a premium.

While Temasek’s long-standing governance model is to support its portfolio companies operating independently and no involve itself in the operating or business decisions, Kyanite does intend to work with the Keppel board of directors on a comprehensive strategic review of its businesses with the aim of “creating sustainable value for all shareholders”.

The strategic review may result in a refocusing on and strengthening of certain Keppel business or potential corporate actions such as joint ventures, strategic partnerships, acquisitions, disposals or mergers, said the Temasek in the statement.