Sembcorp Marine shares have climbed steadily, What’s next?

• SembCorp Marin$SEMBCORP MARINE LTD(S51.SI)$ share price was higher  
• The offshore and marine company had clarified on a proposed merger with Keppel Offshore and Marine
• Analysts foresee price drops for the stock in the next 12 months

Sembcorp Marine shares closed nearly 3% higher on Monday, after the company responded to shareholder queries on its proposed merger with Keppel Corporation’s offshore and marine unit (Keppel O&M).

In the last one month, Sembcorp Marine shares have skyrocketed approximately 24%. However, following the initial 27 April 2022 announcement of the proposed merger, shares have plunged by roughly 27% in the subsequent days.

The counter’s recent subpar performance has led analysts to give it an average rating of ‘underperform’ and an average target price of S$0.097 a share, according to the latest SGX StockFacts data.

The price target represents a 17.1% downside possibility, based on the stock’s last traded price of S$0.117 a share on Tuesday.

What did Sembcorp Marine say about the merger with Keppel O&M?

The ‘proposed combination’ will involve the creation of a new combined entity through two schemes of arrangement. The first is a one-for-one exchange of Sembcorp Marine shares for the combined entity’s shares and the transfer of Sembcorp Marine's listing status to the combined entity.

The second will involve the acquisition of Keppel O&M by the combined entity to be paid for via issuance of new shares of the combined entity.

When it was asked why the proposed merger is at a 50:50 Enterprise Value Ratio (given that the relative Sembcorp Marine’s book value is equal to S$4 billion and Keppel O&M’s pro-forma book value is equal to S$0.9 billion as of December 2021), the company said it was determined after considering an assessment conducted by DBS Bank Ltd.

‘The 50:50 Enterprise Value Ratio between Sembcorp Marine and Keppel O&M was based on a discounted cash flow (DCF) methodology approach conducted by DBS Bank Ltd., as well as negotiations and due diligence by the parties,’ Sembcorp Marine wrote in response.

Sembcorp Marine also explained that the 44:56 (Sembcorp Marine:Keppel O&M) Equity Value Exchange Ratio was agreed upon after due diligence and negotiations that took into account the respective capital structures of the two companies, as well as other adjustments, including the S$500 million payment by Keppel O&M to its parent, Keppel, as part of its restructuring.