AN OFFER TO acquire Singapore-listed STX OSV is finally on the table about a year after reports first surfaced that its parent – STX Europe – was looking to sell its stake in the offshore support vessel (OSV) builder.
On Dec 21, just before the market opened for business, shares of STX OSV were placed on a trading halt following an announcement that Fincantieri – an Italian shipbuilding company – had put forward an offer to acquire 50.75% of STX OSV from STX Europe at $730 million in cash, or $1.22 per share. If approved, the acquisition is expected to be complete within the first four months of 2013. Subsequently, Fincantieri will be required to make a mandatory general offer for the remaining shares of STX OSV under Singapore law.
However, analysts believe the general offer is unlikely to go through, given that Fincantieri’s offer values shares of STX OSV at a 13% discount to its last trading price of $1.40 before trading of its shares were halted. “Fincantieri might not get the acceptance level necessary to take the company private as we view the offer as unattractive to minority holders,” writes Jason Saw of DMG & Partners Research. To force a sale from shareholders, Fincantieri will need to own at least 90% of STX OSV, whose second largest shareholder – US hedge fund Och-Ziff Capital Management – owns a 12% stake.
“In our view, the sale price was somewhat low considering that STX OSV has a relatively strong balance sheet... This depressed sale price could be primarily driven by the desperation of the STX Group to sell its assets to pare down debts,” adds Saw. The STX Group owns STX Europe and is also looking to sell its shipping unit - South Korea and Singapore-listed STX Pan Ocean.
Meanwhile, Saw believes the change in STX OSV’s shareholding structure could provide a fillip to the stock, which is up 23% since the start of the year. “Assuming Fincantieri did not manage to get full acceptance to its general offer and the stock stays listed, we believe the change in major shareholder could remove the overhang on the stock and lead to a re-rating of the stock,” he writes. Fincantieri is one of the world’s largest shipbuilding groups and has built more than 7,000 vessels – including cruise ships, naval vessels and megayachts – over its 200-year history.
STX OSV, on the other hand, specialises on the design and construction of high-end OSVs such as AHTS vessels – which are used to tow and anchor oil rigs – as well as PSVs, which transport personnel, work equipment and food supplies to the rigs. The company currently runs five shipyards in Norway, two in Romania and one each in Brazil and Vietnam.
Since going public two years ago, the company has become a darling of sorts among analysts and investors, owing to its attractive dividend yield – estimated by Saw to be 12.9% in FY2012 - and potential for growth in the offshore and marine sector. On Sept 12, shares of STX OSV had hit an all-time high of $1.66 each, more than double its IPO valuation.
For the nine months to Sept 30, 2012, STX OSV announced a 24.7% yoy drop in earnings to NOK712 million ($156 million) on the back of a 7% drop in revenue to NOK8.6 billion over the same period, owing to fewer orders secured during the period.
Saw of DMG is maintaining his buy recommendation on STX OSV with a target valuation of $2.05. At its Dec 21 close of $1.30, the stock is trading at about 5 times trailing 12-months' earnings.
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