SHARES of Sembcorp Marine (Sembmarine) fell as much as 19.1 per cent after the market opened on Thursday (Apr 28), while Keppel Corporation rose as much as 3.8 per cent.

Both counters had resumed trading on Thursday morning after the companies proposed a giant merger between Keppel Offshore & Marine (Keppel O&M) and Sembmarine on Wednesday.

Sembmarine’s shares dropped to a low of S$0.106 as at 9.01 am on Thursday, down 19.1 per cent or S$0.025. By the close, the counter was down 18 per cent or S$0.023 to S$0.108. Sembmarine was also very actively traded by volume with 1.23 billion shares changing hands.  Meanwhile, Keppel Corp added as much as 3.8 per cent or S$0.25 to reach S$6.91 as at 9 am. By the close, the counter was at S$6.86, up 3 per cent or S$0.2, with 19.2 million shares traded.

On Wednesday morning, Keppel and Sembmarine announced details of a definitive agreement on the landmark transaction merely days before the end-April deadline.

The proposed combination will be dual-pronged and will be carried out via separate schemes of arrangement by the respective entities, which will result in both Sembmarine and Keppel O&M becoming wholly-owned subsidiaries of the combined entity.

Keppel will get a bigger chunk of 56 per cent in the yet-to-be named combined entity, that is valued at S$8.7 billion. The combination will also help Keppel realise about S$9.4 billion in value.

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The conglomerate stands to pocket S$500 million in cash from Keppel O&M to settle outstanding interest and partial redemption of certain perpetual securities previously issued to Keppel - this will happen pre-merger - and is set to monetise the once-flailing rig business just as things are looking up, owing to a crude oil rally.

Analysts have praised the deal so far, but are mixed when determining if the deal favours Keppel Corp more.

CGS-CIMB estimates that Keppel’s share price accretion post-dividend-in-specie from the proposed merger will range from S$0.48 to S$1.43, according to a research report dated Apr 27.

The research team has an “add” call on the stock with a target price of S$7.20, implying a potential upside of 5.1 per cent.

Meanwhile, Sembmarine will face temporary share price pressure as it could trade at an implied combined entity price-to-book value of 1 time or S$0.07 as it could take time to restructure for growth and back to profitability.

CGS-CIMB has a “hold” call and target price of S$0.09 on Sembmarine, implying a potential downside of 18.2 per cent.

On Thursday, OCBC Investment Research said it is “positive” on this deal for Keppel, as it sees the proposed merger as a significant step in regard to the group’s asset monetisation efforts.

OCBC has a “buy” recommendation and fair value of S$8.78 on Keppel so far, representing a potential upside of 28.2 per cent from the counter’s last trading price on Thursday. Meanwhile, it has a “sell” call on Sembmarine and fair value of S$0.11, matching the counter’s 3.50 pm trading price.

Quiddity Advisors analyst reckons that the deal is good for both Keppel and Sembmarine shareholders as it simultaneously gets Sembmarine shareholders "a better company faster" and gives Keppel the exit from the shipbuilding and legacy rig business.

Echoing the sentiment, UOB Kay Hian (UOBKH) said the deal benefits the companies in both the short and long term. That being said, the exchange ratio was more favourable to Keppel Corp.

For Keppel, the divestment of Keppel O&M will allow it to focus more on asset-light and/or recurring-fee businesses. Sembmarine, on the other hand, will become a “larger and arguably more competitive” entity with a strong renewables focus, UOBKH noted.

It has maintained its “buy” call and raised its target prices on both Keppel Corp and Sembmarine to S$10.11 and S$0.156, respectively. This represents a potential upside of 47.6 per cent for Keppel Corp and 18.2 per cent for Sembmarine.