Sembmarine-Keppel O&M merger vote passes with more than 95 per cent in favour

IT HAS been nearly a year since the proposal to merge offshore and marine (O&M) giants Keppel O&M and Sembcorp Marine (Sembmarine), but the motion took a big step forward on Thursday (Feb 16) as shareholders voted overwhelmingly in favour of amalgamating the two into one.

At a fully virtual extraordinary general meeting (EGM), over 95 per cent of shares voted were in favour of the merger.

Out of 4,317,242,439 shares represented at the meeting, only 203,730,349 of them, representing 4.72 per cent of the shares, voted against the proposed merger.

As at Mar 8, 2022, Sembmarine reported a total of 31,389,105,375 issued shares. Excluding Temasek’s stake of 17,131,609,303 shares, this means that only 30.3 per cent of shares were voted in the EGM.

In the lead-up to the EGM, shareholders and industry watchers raised concerns on it being held virtually, instead of in-person. But while attendance at the virtual EGM was low, a physical meeting may not have changed the outcome, noted shareholder Mano Sabnani.

Sabnani – who did not attend the EGM – said there is no strong reason to reject the resolution, and that it made sense for the entities to merge and become stronger. He noted, however, that the virtual EGM stripped shareholders of the opportunity to share their views and concerns with each other as well as have more personal interactions with the company’s management.

Sabnani said he no longer felt the need to attend virtual EGMs because they are “not personal at all”, and companies would publish meeting minutes on the bourse after the meeting. There is also no guarantee that one can ask questions and have them answered during a virtual EGM.

“At least once a year, the board owes it to (the shareholders) to allow them to come face to face and meet the management and get their questions answered,” he said.

Sabnani hopes the merged entity will hold physical meetings in the future for shareholders to meet the management, given that there will be management changes post-merger.

He said: “When you know the company and the management quite well, you have a sense of confidence that (you’re) not dealing with just numbers provided by the company.”

Post-vote, OCBC Investment Research said in a report on Thursday that the combined entity could result in a “premier global player in the energy sector, well-positioned to capture opportunities in both the renewable-energy and traditional-energy segments”.

However, analysts also cautioned investors on several risk factors following the merger. These include restructuring costs and integration efforts, which would still be incurred post-combination; cost inflation issues; as well as customer concentration and order deferment risks.

“In the shorter term, the deal approval and possibility of index inclusions are likely to support the stock, but there may also be downward pressure by Keppel shareholders who choose to sell Sembcorp Marine stock after receiving the distribution in-specie.”

As part of the agreement, Keppel has said it will retain 5 per cent of the enlarged shares in Sembmarine, and distribute 49 per cent of the shares in-specie to its shareholders.

OCBC later raised its fair-value estimate on Sembmarine from S$0.12 to S$0.185, based on a 1.5 time price-to-book ratio and taking into account the stock’s historical valuations. The brokerage also retained its “buy” call on the group.

“However, investors are reminded that we are still forecasting a significant loss for FY22, while the outlook for FY23 still remains unclear as the integration will take time,” said OCBC.