LIQUEFIED petroleum gas (LPG) dealer Union Gas Holdings plans to buy the distribution, bottling and storage businesses from its sole supplier of bottled LPG cylinders, Union Energy Corp.
Catalist-listed Union Gas has inked an exclusive, non-binding memorandum of understanding, the board disclosed in a bourse filing on Wednesday, with any purchase dependent on conditions such as due diligence and an independent valuation being carried out for the assets.
The potential deal is expected to be funded by a mix of cash and shares, with the possibility of tapping bank borrowings or a fund-raising exercise.
It would count as an interested-person transaction, as vendor Union Energy Corp is a substantial shareholder. Union Gas chairman Teo Kiang Ang, chief executive Teo Hark Piang and substantial shareholder Ellen Teo also hold substantial stakes in Union Energy Corp.
Union Gas billed the potential transaction as "strategic and complementary to its existing business", as it could build up its base of commercial and industrial customers who "do not make up a sizeable portion of the group's LPG distribution business" at this time.
The board added that taking over ownership of Sembas (Asia) Trading, Semgas Supply and Summit Gas Systems would help it to reduce its reliance on third parties for bottled LPG cylinders.
These new businesses might also enable Union Gas to expand into wholesale distribution of bottled LPG cylinders, or the bottling and refilling of LPG cylinders to other entities.
Meanwhile, the group could gain support infrastructure such as a sales team or more delivery vehicles from the potential deal, said the board.
"Overall, by owning and operating a holistic integrated LPG supply chain and acquiring an enlarged base of customers, the group believes that it will be able maintain its competitiveness and improve the breadth and scale of its service offerings to all its customers," it said.
The board added that the transaction would likely improve Union Gas' business performance and financial results, as well as raise its scale, operational efficiencies and resilience.
Shareholders and potential investors were advised to exercise caution when trading in the company's shares, as a definitive sale-and-purchase agreement may not materialise.
"The company will provide relevant update announcements as and when there are material developments," the Union Gas board said.
As it would be an interested-party transaction, shareholders would have to approve any potential purchase at an extraordinary general meeting.
Shares closed flat at S$0.265 on Wednesday, before the announcement.