SHARES of Catalist-listed EMS Energy gained in trading on Monday morning, after it announced last Friday that it plans to merge with engineering, procurement and construction management firm Koastal Group in a deal valued at S$150 million.
Shares of EMS rose to 2.5 Singapore cents on Monday morning before easing slightly to 2.4 Singapore cents, up from the previous close of 2.3 Singapore cents.
EMS Energy announced last Friday after the market closed that it had entered into a non-binding memorandum of understanding to acquire an investment holding company which will hold Koastal and its subsidiaries. Koastal Industries is a controlling shareholder of EMS as it holds a 33.46 per cent stake in EMS.
The enlarged group will become an integrated offshore and marine (O&M) services provider which can provide manufacturing and fabrication for larger and higher-value projects.
The S$150 million will be funded via the issue of S$125.7 million worth of new EMS shares at 34.5 Singapore cents each and a cash payment of S$24.3 million to the vendors, who are EMS's chief executive and executive chairman Ting Teck Jin and Ting Teck Seh. Mr Ting Teck Jin is also EMS's single largest shareholder.
Koastal Group is valued at US$143.1 million by Jones Lang LaSalle Corporate Appraisal and Advisory. Koastal Group recorded revenues of S$93.1 million and a net profit of S$14.3 million for the financial year ended Dec 31, 2014.
"The proposed merger will allow EMS to scale up the value chain more aggressively, improve efficiencies, diversify its revenue streams and capture higher-margin, larger-scale projects," EMS said in a release.
Ahead of the merger, EMS will first consolidate its shares on the basis of every 15 existing shares to one consolidated share, which will reduce its share capital base from about 1.48 billion to around 98.71 million in a bid to "raise the profile of the group amongst institutional investors" and boost research coverage. Following the share consolidation exercise, EMS will issue up to 364.44 million new consolidated EMS shares at 34.5 Singapore cents each.
Prior to the completion of the proposed merger, Koastal Group will undergo a restructuring exercise that will include the disposal of its equity interest in EMS, NVS Holdings, NVS (Singapore), and Nosco-Vinalines Ship Repair Company.