SapuraCrest, Kencana Petroleum to Merge in $3.95B Deal

KUALA LUMPUR (Dow Jones Newswires), July 11, 2011

Malaysia's SapuraCrest Petroleum and Kencana Petroleum said Monday they have received separate takeover offers from an unlisted company which plans to merge them in a MYR11.85 billion ($3.95 billion) combined deal that could create the country's second largest oil and gas services provider in terms of market capitalization.

Integral Key Sdn Bhd, a shell vehicle wholly owned by Malayan Banking's private equity unit Maybank Ventures Sdn Bhd, has made takeover offers for both SapuraCrest and Kencana, the companies, as well as Integral Key, said in statements Monday. Maybank Investment Bank and CIMB Investment Bank are the joint advisors to the shell company.

"The principal shareholders of SapuraCrest and Kencana are keen to consider the merger," E. Sreesanthan, Integral Key's legal adviser, told reporters at a press conference.

Integral Key plans to acquire all the assets and liabilities of Kencana and SapuraCrest and merge them into an integrated oil and gas service provider, the two companies said in separate exchange filings.

If successful, the merged entity will be the second-largest player in the country's oil and gas services sector after Malaysia Marine & Heavy Engineering Holdings, a unit of national oil company Petroliam Nasional Bhd (Petronas).

Both SapuraCrest and Kencana have been looking to move up the value chain and expand their offerings in order to take advantage of the robust oil and gas industry in the region amid higher global oil prices.

"The merged entity will be in a strong position to undertake larger and more complex projects, thus significantly improving business prospects," Integral said in its letter of offer to both companies. The tie-up will "create a full-fledged integrated oil and gas services provider with strong delivery capabilities across the value chain," it added.

The entity also stands to benefit from Petronas' MYR300 billion capital expenditure program over the next five years, analysts said. Petronas is planning to replace or refurbish its oil and gas production assets in Malaysia. A merged firm will also be in a better position to bid for contracts outside the country, they added.

The deal, which will be the fourth-largest domestic merger in the Southeast Asian nation and the largest this year, was planned by Malaysia's top two investment banks--Maybank and CIMB-- and has the support of the key shareholders of the two takeover targets.

Integral Key has the support of SapuraCrest's key shareholder Sapura Holdings, which holds 40.1% in SapuraCrest, and Kencana's major shareholder Khasera, which holds 32.4%, CIMB Group Deputy Chief Executive Officer, Corporate and Investment Banking, Charon Wardini Mokhzani said.

Once the merger is complete, Sapura Holdings will hold 20.0% and Khasera will hold 16.2% in the combined entity, according to the merger plan.

SapuraCrest Petroleum said Integral Key is offering to pay MYR5.87 billion, or MYR4.60 a share, through an issue of 2.50 million new shares in Integral Key and a cash payment of MYR875.1 million. The offer price for SapuraCrest represents a 2.4% premium over its Friday closing price of MYR4.49.

Kencana Petroleum said Integral Key is offering to pay MYR5.98 billion, or MYR3.00 a share, through an issue of 2.51 million new shares in Integral Key and a cash payment of MYR968.7 million. The offer price for Kencana represents a 7.1% premium over its Friday closing price of MYR2.80.

Maybank Investment Bank and CIMB Investment Bank expect the deal to be completed in within eight months, post which both SapuraCrest and Kencana will be delisted from the stock exchange, and the merged entity will be listed under a new name.

Kencana said it has hired AmInvestment Bank Bhd and Credit Suisse as the adviser and financial adviser, respectively for the offer; while SapuraCrest said the board will appoint relevant advisers in due course and deliberate the terms of the offer.

Integral Key has submitted the offers to the boards of SapuraCrest and Kencana on Monday and the two companies have until Aug. 15 to respond to the offers.

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