Temasek to pull out of $4.1b partial offer for Keppel Corp
Singapore investment company Temasek will pull out of its $4.1 billion partial offer for Keppel Corporation in the light of the conglomerate's poor financial showing.
It comes after Keppel reported last month that second-quarter losses came in at $697.6 million, which breached a pre-condition for the partial buyout. This led Temasek to announce earlier this month that it would decide on whether to proceed with the deal by the end of this month.
A bourse filing yesterday stated that the investment company's wholly owned subsidiary Kyanite Investment Holdings will invoke what is known as a material adverse change clause and not go ahead with its offer.
Last October, Temasek, which already owns about one-fifth of Keppel, offered to buy an additional 30.6 per cent stake, subject to a number of key terms, including there being no material adverse change in the group's financial performance. These clauses can be invoked to end or renegotiate deals.
The clause in this offer stated that Keppel's profit after tax must not fall by more than 20 per cent, or about $557 million, over the cumulative four quarters from the third quarter ended September 2019. This pre-condition was breached with the company's latest results.
The decision to walk away is "not unreasonable", although slightly earlier than expected, CGS-CIMB analyst Lim Siew Khee wrote in a note yesterday.
The move may have bearing on a widely anticipated merger between Keppel Offshore & Marine and its rival Sembcorp Marine.
In June, Temasek backed a $2.1 billion rights issue by Sembcorp Marine, which will also see it "demerged" from parent Sembcorp Industries.
"Our hopes of a potential merger between the yards may not happen so soon,"said Ms Lim.
While most investors agree that Keppel's valuations are attractive and the offshore and marine industry is strategic to Singapore, the sector needs restructuring, she added.
"For Keppel's share price to re-rate above our price target... bold restructuring is required, regardless of who the driver of these changes might be."
Mr Joel Ng, research head at investment service company KGI Securities, said there should not be any significant impact on Keppel's long-term potential as the company "has managed to diversify beyond offshore and marine over the last past decade, and is in a favourable position to tap on growth opportunities in Asia".
"We still believe that Temasek will proceed with the consolidation of Singapore's offshore and marine sector, although it may have changed how to proceed forward in light of the impact of Covid-19 on asset values," he added.