Sime Darby/Ramunia ... Aug 09

Sime Darby Bhd will pay RM560 million (US$159.1 million) to acquire energy services firm Ramunia, revising an earlier offer to pay RM232 million for the stake excluding liabilities.

Under the revised offer, Sime will pay for the acquisition in cash instead of the part cash, part share in unit Sime Darby Engineering (SDE) offer it made in May 2009.

The offer is better for Ramunia shareholders as they will get a lump sum amount in cash for the purchase as opposed to the earlier offer that included shares in SDE as part of the payment.

Going Forward …

The earlier offer by Sme Darby is to acquire assets and liabilities of Ramunia for RM232 million – Rm46 million in cash and RM185 million in SDE shares. The new offer is only for Ramunia’s assets for RM560 million cash.

The latest offer works out to be better for Sime Darby but slightly worse for Ramunia. However, Ramunia does not really have a choice given rising losses, mounting debts and contracts drying up.

In the earlier offer, Ramunia would have ended up with Rm46 million cash and 20% stake in SDE, giving it an opportunity to ride on the latter’s growth. It would end up as shell company with no core business, however.

Under the first offer, taking into account the liabilities that Sime Darby would have taken over, the acquisition price worked out to roughly RM635 million, higher than the revised offer of RM560 million.

It is believed that the cash from the latest deal could be used to pay off Ramunia’s debts; its total liabilities come up to Rm570 million as at April 2009. Long term and short term borrowings, coupled with payables, totaled RM563 million.

After setting its liabilities, Ramunia could still monetise its current assets of RM172 million, resulting in net cash of RM161 million or 29 sen per share.

The board is still evaluating plans for optimal utilisation of the cash proceeds form the proposed disposal, with the aim of providing maximum benefits to the company and its stakeholders. Given Ramunia’s poor track record, it would be better if it distributes the cash and delists.

Upon the completion of deal, Ramunia may be classified as a cash company under PN16 or even PN17, which applies for distressed companies.

However, some industry observers noted that after debts and payables are settled, it is possible that there will be round two, where there could be a takeover by another company, a new partner or Tabung Haji may inject assets into Ramunia. Distribution to shareholders are quite unlikely since Ramunia is looking for a new core business.

But still striking a deal with creditors, leaving more cash for its future business, or return some of it to shareholders is uncertain.

As for new business, market talk has it that LTH, which owns a 29.7% stake in Ramunia, may inject some of its oil and gas related investments into the company later on.

Currently (Aug 2009) LTH is still one of the largest shareholder in Ramunia as it may presence some conform to investors. Average price for LTH entry into RAMunia is RM1.40.

Related:-
Ramunia/Sime Darby ... May 09
Sime Darby/Ramunia ... Apr 09