Singapore's Temasek Holdings has not yet decided whether to invoke a clause in its $3bn conditional offer for Keppel Corp that would allow the state-owned investment firm to withdraw the bid.
Keppel Corp reported a second-quarter loss last week that breached a threshold in Temasek’s offer to take control of the Singapore-listed shipbuilding, real estate and infrastructure firm. That could allow the investment firm to invoke a so-called material adverse change (MAC) clause.
“At this stage, the offeror has not made a decision whether to invoke the MAC pre-condition based on the second-quarter results,” said Morgan Stanley, which is acting as an advisor to Temasek.
"If the MAC pre-condition is invoked by the offeror, the pre-conditional partial offer will be withdrawn."
Morgan Stanley said that Temasek, following consultation with the Securities Industry Council of Singapore, will disclose its decision no later than 31 August 2020.
Last week, Keppel Corp chief executive Loh Chin Hua said that the second-quarter loss had triggered the MAC clause but did not venture a view as to whether Temasek would go ahead with the partial offer.
“In our view, Temasek has the right to waive the MAC clause, and we believe that it will continue with the partial offer albeit at a lower price,” UOB Kian Hian analyst Adrian Loh said.
Loh said Temasek has three options: waive the breach of the MAC clause and continue on with the partial offer at SGD 7.35 ($5.34) per share; waive the breach of the MAC clause but revise the partial offer down to between SGD 6.29 and SGD 6.86 per share, or invoke the MAC clause and wholly withdraw the partial offer.
If Temasek opts for the latter option, Loh said there is no moratorium on a revised partial offer and that it can “come back with another offer at any time”.
Next week, investors in Sembcorp Marine and Sembcorp Industries are due to vote at separate extraordinary general meetings on proposals for an SGD 2.1bn ($1.5bn) rights issue and a demerger of the two companies.
“Should shareholders vote for the demerger, the likelihood of Temasek going forward with the Keppel Corp partial offer will be much higher,” Loh said.
“With Sembcorp Marine demerged from Sembcorp Industries, Temasek will then be in a better position to engineer a merger of Keppel’s offshore and marine business with Sembcorp Marine.”
At the end of the day, Loh said the “game plan” is to create a single Singapore-based offshore and marine company to compete with the likes of the South Korean or Chinese behemoths.
“This [consolidation] makes economic sense and is better carried out during a cycle trough rather than mid or peak cycle in our view,” he said.
