Fincantieri, an Italian shipbuilding company, has signed an agreement to acquire 50.75% of STX OSV from STX Europe for S$730m cash, translating into a price of S$1.22/share, a 13% discount to its last closing price and a 17.5% discount to the weighted average price of the past three months. The acquisition of the stake is expected to be completed within the first four months of 2013 and subsequently, Fincantieri will make a cash general offer for the remaining shares in compliance with the rules of the Singapore Code on Take-overs and Mergers.
Depressed sale price as STX Group is desperate to pare down its debts. In our view, the sale price was somewhat low considering that STX OSV has a relatively strong balance sheet (net cash of S$0.35/share) and the offer values the stock at an attractive 7x FY13F P/E. This depressed sale price could be primarily driven by the desperation of the STX Group to sell its assets to pare down debts. The STX Group is also looking to sell its shipping unit, STX Pan Ocean, as part of its group restructuring process.
We think the GO is unlikely to succeed. While Fincantieri has lined up the finances to acquire 100% of STX OSV, we believe the general offer is unlikely to succeed: (1) offer is a substantial discount to current price and we think the general offer is merely to satisfy the Singapore Take-over and Mergers rules and; (2) Fincantieri might not get the acceptance level necessary to take the company private as we view the offer as unattractive to minority holders. Fincantieri needs to own at least 90% of the shares to squeeze the remaining shareholders. Och-Ziff, the second largest shareholder, has a 12% stake.
Change in major shareholder removes overhang on stock. 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 rerating of the stock.
Valuation: Maintain BUY with an unchanged TP of S$2.05. Our TP is based on 12x FY13F P/E, 25% discount to our target P/E for Singapore rig builders.
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