M & A CritiqueTECHNIP a Euronext-listed entity, through its wholly owned subsidiary, Coflexip Stena (Mauritius) Offshore Limited, had entered into a binding agreement for the divestment of a majority stake of at least 51% and up to 75% in Seamec Limited to HAL Offshore Limited, India at a consideration of $1.60 (INR 97) per share (translating to $27.61 million /€20 million/INR 167 crore for 51 % and up to $40.04 million / €29 million / INR 246.62 crore for 75% stake).
DEAL:
In terms of the Share Purchase Agreement, HAL Offshore proposes to acquire up to 2.54 crore equity shares representing upto 75% of the total paid-up equity share capital of Seamec in two tranches, subject to the number of equity shares acquired in the open offer.
The stake in Seamec is held by Technip’s fully-owned subsidiary Coflexip Stena Mauritius. HAL is initially buying a majority stake (51 per cent) in Seamec at Rs. 97 a share of Rs.10 each (also the open offer price). The target is to buy maximum of 75 per cent including the open offer. The strategy is to keep the company (Seamec) listed as well as keep the acquisition cost down. Depending on the response to the offer, HAL Offshore might go in for further purchases of shares from the current promoters — Coflexip Stena Offshore (Mauritius) Ltd, which holds 75 per cent. Coflexip may retain some shareholding if HAL does not buy its entire stake.
In the first tranche, HAL proposes to acquire 17,289,000 equity shares representing 51% of the total paid-up equity share capital of Seamec. Thereafter, subject to the number of equity shares acquired in the open offer, HAL shall acquire such number of equity shares in the second tranche, to bring its aggregate shareholding in the Seamec to 75% of the total paid-up equity share capital of Seamec.
Seamec’s net profit spurted 540% to Rs 30.27 crore on 45.8% growth in net sales to Rs.126.39 crore in Q3 December 2013 over Q3 December 2012.
Technip offloads 75% stake in Seamec to HAL offshore to consolidate its business
COMPANY PROFILES:
HAL Offshore Limited
HAL Offshore Limited is an end to end solution provider of underwater services and EPC services to the Indian oil and gas industry. It owns two multi-purpose supply and support vessels (including one vessel with capabilities to provide diving support). Today, HAL is a veritable one-stop shop for providing Offshore Logistics and Construction Solutions. Over the years, HAL has developed a diversified portfolio for undertaking turnkey projects involving sub-sea and marine services and an EPC contractor.
HAL Offshore Limited is part of Delhi-based MMGroup, a multimillion dollar conglomerate, having presence across diverse verticals such as Bottling and Marketing of Soft Drink under license from Coca-Cola USA, Oil Field Logistics and Construction Services, Hospitality, Real Estate, Supplies to Indian Army, Philanthropic Education Trust etc.
Seamec Limited
Seamec Limited is India’s leading provider of diving support vessel (DSV) based diving services globally. It owns and operates a fleet of five diving support vessels for providing support services including marine, construction and diving services to offshore oilfields. Technip through its wholly owned subsidiary, Coflexip Stena Offshore Mauritius owns 75 per cent equity stake in Seamec Limited. Seamec employs presently 40 at Base and 495 Contracted staff. The shares of Seamec are listed on the Stock Exchange of Mumbai (BSE) as well as with the National Stock Exchange of India Ltd (NSE).
Technip SA
Technip SA is a French company head quartered in Paris. Technip is a world leader in project management, engineering and construction for the energy industry. The Group has a workforce of 40,000 people worldwide, fully-integrated capabilities and widely acknowledged expertise in three business segments: Subsea infrastructures, Offshore platforms and Onshore processing facilities. Present in 48 countries with 40,000 people, Technip has state-of-the-art industrial assets on all continents and operates a fleet of specialized vessels for pipeline installation and subsea construction. Technip shares are listed on the NYSE Euronext Paris exchange and traded in the USA on the OTCQX marketplace.
What the deal spells for the companies?
The deal comes at a time when Seamec is poised for a good year after years of struggle due to improved utilization of assets with improvement in charter rates. The company was hit by cyclical nature of its earnings, thanks to mandatory dry-docking of vessels every two-and-half years, when it has to incur heavy expenses on one hand, while idle asset means loss of revenues.
This acquisition allows for the development of the Seamec business and HAL’s, and it is a part of HAL’s strategy to expand its fleet of Specialized Diving Support Vessel as well as geographical presence.
On the other hand, the divestment is part of Technip’s strategy to concentrate on its core competencies involving deepest subsea complex, deepwater oil and gas developments. It allows Technip to continue to invest in and grow its business in India, where it employs nearly 3,000-strong workforce focusing on onshore and offshore technologies and projects as to grow in the exciting deepwater Subsea sector.
This change in guard might work out well for Seamec. Within Technip, Seamec was quite a small little piece of the entire company. With HAL Offshore it will be the main unit, so it is expected that the focus on new tonnage and expansions will improve. HAL executes contracts for Inspection, Maintenance & Repair (IMR), revamping & modification for offshore petroleum exploration & production industry. Also HAL had previously hired Seamec’s vessel to perform its contracts. Hence there will be some synergistic benefits from this acquisition.
SEAMEC SHAREHOLDING:
The promoter holding in Seamec is 75% which is held by Technip through its wholly owned subsidiary Coflexip Stena (Mauritius) Offshore Limited. Reliance Capital and Sundaram Mutual Fund are among the public shareholders of Seamec holding 1.20 per cent and 1.74 per cent, respectively. Widely dispersed small investors hold the rest of the non-promoter shareholding in the company.
If the price of Seamec’s stock in last ten years is compared, one point that comes to the forefront is that the share prices have always maintained downward range of INR 50. Also there have been continuous fluctuations in the share prices. The share price has gone as high as Rs. 280-290 and has low as Rs. 40-45.
If the financial results for the last few years are compared; it is observed that Seamec has always had a high fixed cost component. The company is in a turnaround phase with good cash position and better financial position as compared to last two years.
The deal presents a better prospect for Seamec stocks in future. With the two rivals (HAL and Seamec) joining hands the stock price can be expected to gain in future as the element of competition is getting eliminated.
OFFER PRICE TO DISAPPOINT SEAMEC SHAREHOLDERS!
HAL Offshore’s acquisition of SEAMEC at a share price of Rs. 97 per share is set to disappoint the shareholders of Seamec, as the mandatory open offer price is at a 3% discount to the scrip’s latest closing price. Being a mandatory offer it is not conditional to any minimum level of subscription, or, in other words, is allowed to fail completely. The deal is structured in such a way as to limit HAL’s stake at 75% and keep SEAMEC listed with 25% free float. HAL will first acquire 51% stake from current owners Technip, execute the open offer, and depending on its success will pick up further stake from current owners to take its total stake to 75%. As a result, the mandatory open offer pricing is kept at the bare minimum to satisfy legal requirements.
Seamec passed through a turnaround phase and is looking forward to better times ahead. Between May and July 2013 they undertook 4 dry-dockings that impacted their profits. The company is carrying Rs 100 crore of cash, which is 30% of its market capitalization and is considering adding a sixth vessel to its fleet in FY-15. All these factors make the open offer price a dampener for SEAMEC’s retail shareholders. Looking at the turnaround, the healthy cash position and the market value of the offshore vessels, the open offer price should have been at a healthy premium to the CMP.
CONCLUSION:
The two tranche acquisition process is in line with the Technip and HAL’s business growth strategy. The times ahead look good with Seamec doing good after years of struggle. On one hand Technip will be able to concentrate more on its core competencies while Hal with the acquisition of rival will look to strengthen its position in the market. The deal though in line with Business growth strategy of HAL and Technip; but it does not do justice to the shareholders of Seamec. The shareholders are bound to be disappointed with the offer price being offered by the company. A merger can be expected two-three years down the line between HAL and Seamec. With both the companies being in the same line of business; it would make more sense for HAL to merge with Seamec line to reduce cost, increase efficiencies and for better results.
