Hot stock: Union Gas jumps 23.9% on proposed S$75m LPG acquisition

SHARES of Union Gas Holdings jumped on Wednesday after the fuel-products provider proposed to acquire its substantial shareholder's liquefied petroleum gas (LPG) distribution, bottling and storage businesses for S$75 million via a mix of cash and shares allotment.

The move will allow Union Gas to expand its customer base to commercial and industrial users, on top of its current customer base of supplying bottled LPG cylinders to domestic households. 

It also paves the way for Union Gas to distribute bottled LPG cylinders to the wholesale space, or the provision of bottling and refilling of LPG cylinders to non-affiliated entities.

The proposed deal will also allow Union Gas to gain ownership of two out of four bottling licences and bottling plants in Singapore, the group said in a statement on Wednesday. 

Shares of Union Gas rose as high as 99.5 Singapore cents a share in intraday trading - 25.2 per cent above its close on Tuesday at 79.5 cents. They ended Wednesday at 98.5 cents, giving the company a market capitalisation of S$182 million.

The seller of the LPG businesses - Union Energy Corporation (UEC) - holds a 12.6 per cent shareholding interest in Union Gas. UEC is also an associate of Union Gas' non-executive chairman Teo Kiang Ang and executive director and chief executive Teo Hark Piang, by virtue of their respective 61.89 per cent and 12.55 per cent equity interests in UEC.

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UEC will sell wholly-owned subsidiaries Sembas (Asia) Trading, Semgas Supply and Summit Gas Systems to Union Gas.

The proposed acquisition includes the purchase of two bottling plants and land at 43 Jalan Buroh and 2D Jalan Pesawat. It also comprises support infrastructures such as five LPG storage depots, 71 delivery vehicles and an entire commercial and industrial LPG sales team. 

UEC and its subsidiaries are in the business of supplying and distributing LPG to commercial and industrial customers. These include hotels, food establishments such as restaurants and coffee shops, as well as factories. They are also in the business of supplying bottled LPG cylinders and LPG storage - from which Union Gas obtains its supply.

These cylinders are subsequently sold under the "Union" and "Sungas" brands as part of dealership agreements and a trademark licence.

The proposed deal will reduce dependence on UEC Group for the supply of bottled LPG containers, the company said. 

Union Gas chief executive Teo Hark Piang noted that the proposed transaction, which is earnings accretive, will also increase the company’s resilience and ability to navigate different economic cycles due to the control of an integrated supply chain and broader customer base. 

“The new bottling business is a key strategic factor in our plans to deliver steady and sustainable growth for Union Gas,” he added. 

Based on pro forma estimates, the proposed transaction will double Union Gas' earnings per share to 9.03 Singapore cents post-acquisition, from 6.06 cents before the proposed acquisition, assuming it was completed on Jan 1, 2021, according to a bourse filing. (See Amendment note.)

A majority of the transaction's consideration (S$61 million) will be satisfied via an allotment of about 88.6 million shares in Union Gas at an issue price of 68.81 Singapore cents per share. The issue price represents a discount of around 9.99 per cent to the volume-weighted average price of 76.45 Singapore cents per share, based on share trades done on Aug 24 - the last full market day before the share and purchase agreement was signed on Tuesday.

Some S$10 million in cash had been paid as at Tuesday. Another S$2.4 million will be paid on the completion date of the proposed deal - Feb 28, 2022 - while S$1.6 million for the commercial vehicles owned by Semgas (S) and Choon Hin will be paid on the same date.

The S$10 million and S$2.4 million amounts shall be funded from Union Gas' internal resources, it said.

As the proposed acquisition is an interested-party transaction with a value greater than 5 per cent of Union Gas' net tangible assets, the company will convene an extraordinary general meeting to seek approval from independent shareholders.

Shareholders will also need to approve a whitewash waiver, if granted by the Securities Industry Council, of Mr Teo Kiang Ang's obligation to make a mandatory general offer if the proposed transaction is completed.

His effective shareholding in Union Gas will go up to 58.85 per cent after the consideration shares are issued at completion. He is deemed interested in UEC through his 61.89 per cent shareholding in UEC. (See Amendment note.)

As at Wednesday, Mr Teo Kiang Ang had a total effective shareholding interest of 44.9 per cent in Union Gas, which means he would be obliged to make a general offer for shares he doesn't already own if his stakeholding increases by more than 1 per cent within a six-month period.

Amendment note: The story has been updated to reflect a corrigendum issued by Union Gas on Aug 27. An earlier version of this article stated that:

1. Union Gas' earnings per share post-acquisition was 12.64 Singapore cents when it should have been 9.03 Singapore cents.
2. Mr Teo Kiang Ang's effective shareholding would increase to 60.28 per cent when it should have been 58.85 per cent.