150_1Lee-YuejerLee Yue Jer, analyst, OSK-DMGKreuz is the subject of a takeover offer by private equity fund SEA9 Pte Ltd at a price of SGD0.80 per share. Unusually, the method of acquisition is by scheme of arrangement, which aims to bypass a general offer. We believe that the offer price undervalues Kreuz, given its long-term growth potential. Our recommendation to shareholders is DO NOT ACCEPT, reiterating our SGD1.16 TP and DCF-value of SGD2.25 per share. 

31% discount to TP, 64% discount to DCF-value. 
The offer price values Kreuz at a mere 7.4x FY13F P/E, resulting from the interplay between a weak seller and a strong buyer.

The offer price implies a 31% discount from our 12-month TP, and a 64% discount from our DCF-value of the company at SGD2.25 per share, based on a 10.6% WACC. 


Kreuz is worth SGD2.00+ in FY15 and beyond. 
Factoring in the growth from the diving support vessels (DSVs) sector, we believe that Kreuz’ earnings can grow to USD69.4m in FY15F and USD92.2m in FY16F from USD39.7m in FY12.

At those earnings, its shares will be worth SGD2.07-2.61 at the same 10x P/E. SEA9 stands to achieve a 226% return in three years by taking Kreuz private now and potentially re-listing it later at an even higher multiple than at takeover. 

Swiber chooses jam now, peanuts later. 
Swiber (SWIB SP, NR) will recognise a USD90.6m gain upon deal completion. However, we note that Kreuz accounted for 22-202% of the former’s earnings in the last six quarters, and 50% overall for FY12.

Swiber is selling its crown jewel for a one-time gain at the expense of future growth and profitability. 

David vs Goliath with a different outcome. 
In this case, the combined stakes of Swiber’s and Kreuz’ directors already stands at 73.69%, almost at the requisite 75% to achieve “shareholder approval”.

The scheme of arrangement will then be brought to court, which can then sanction a compulsory acquisition of minority shareholders’ stakes.

In this case, the minorities have little chance against the Goliath of the majority, and we expect the deal to go through. We do, however, stand by our valuations and recommend that investors DO NOT ACCEPT. 


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Comments  

#2 Shareholder 2013-11-07 02:32
I dont know abt Kreuz but certainly this deal is positive for Swiber -- net cash of SGD127 m will flow into its bank acct for its 57.5% stake in Kreuz,

Swiber has not been v attractive to investors becos of its high gearing. The sale of Kreuz shares will improve its balance sheet.
#1 ghchua 2013-11-06 07:26
I don't think this is a done deal. I think the analyst might have missed out on the fact that for a scheme of arrangement to go through, it has to be:

The Scheme has to be approved by a majority in number of Shareholders AND
75% in value of the Shares voted at the Scheme Meeting

Although they might have 75% of the votes in favour, they might lose out if the majority of shareholders (i.e. most of the minorities) turn out in force to vote against the scheme. Number of shareholders mean that I can hold 1 share and I considered also as one shareholder.

The Nera Tel case study is classic example of a scheme that had been voted out by minorities.

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