According to sources, the proponents of the deal are unsure if shareholders’ approval can be obtained to see through the multi-billion-ringgit transaction that is said to be backed by UMW-OG’s major shareholder Permodalan Nasional Bhd (PNB) and Ekuiti Nasional Bhd (Ekuinas), which owns major stakes in both Icon and Orkim.
Under the deal announced in January, UMW-OG is offering to buy Icon for 50 sen a share, valuing the company at RM589mil.
Shareholders of Icon can choose to accept cash, or new shares in UMW-OG to be issued at 80 sen each.
UMW-OG is also buying a 95.5% stake in Orkim for RM472.7mil cash.
Ekuinas has a 42.3% stake in Icon and 95.5% stake in Orkim.
The deal raised concerns as it involved the acquisition of Orkim in an all-cash deal.
Orkim is the largest clean petroleum product (CPP) tanker owner in the country with a fleet of 14 CPP tankers and two liquefied petroleum gas tankers.
“Although Ekuinas has said it will reinvest in the merged entity, the Orkim acquisition is a hard sell for UMW-OG’s shareholders.
“It is not a synergistic deal for an upstream operator and requires a large chunk of cash upfront from the group,” said a source familiar with the matter.
If successful, the deal would create the biggest integrated oil and gas (O&G) service provider since the tie-up between Kencana Petroleum Bhd and SapuraCrest Petroleum Bhd five years ago.
The merged entity will have a diversified fleet of vessels, including state-of-the-art jack-up drilling rigs, offshore support vessels, as well as tankers.
Upon completion of the deal, Ekuinas will retain a 12.6% stake in the merged entity.
It has also committed to an investment of up to RM550mil as part of a RM1.8bil rights issue, which will be undertaken by the enlarged O&G group to pay off some of its borrowings.
The acquisition of Orkim, which is to be fully satisfied in cash, drew scrutiny due to its valuations. According to previous exchange filings, the purchase price represented a price-to-earnings ratio of 15.25 times based on Orkim’s RM32.5mil net profit for the financial year ended Dec 31, 2015 (FY15).
On UMW-OG’s part, the group will have to secure shareholders’ approval for the two acquisitions.
As part of the stake purchase in Icon, UMW-OG will be obligated to extend a mandatory general offer of 50 sen a share to Icon’s minority shareholders.
Icon’s net assets per share plummeted to 48 sen in FY16 from 60.9 sen a year ago after it incurred a series of impairments on its O&G assets.
However, getting the approvals may pose a challenge, given the substantial change in shareholdings in UMW-OG.
This is because UMW-OG’s current major shareholder, UMW Holdings Bhd, is undertaking a proposed distribution of its UMW-OG shares to UMW’s shareholders as a means of divestment in the O&G firm.
The deal is widely seen as a move by PNB to bring UMW back to its basic business, which is in the manufacturing of automotive and industrial products.
Before the exercise was announced, UMW was dragged down because of its 55.73% stake in the loss-making UMW-OG.
Under the exercise, UMW will distribute the UMW-OG shares as dividend-in-specie, resulting in shareholders owning the O&G arm directly.
PNB will also become a majority shareholder in UMW-OG with a 45% direct stake.
The Employees Provident Fund (EPF) will see its holdings increased to 13.8% after the distribution from a 4.7% stake.
This means that the fund will have a major say in whether the deal goes through. The EPF has yet to comment on the merger.