This article first appeared in The Edge Financial Daily on August 22, 2017 - August 28, 2017

KUALA LUMPUR: Loss-making Scomi Group Bhd has put forth a plan to merge the group with two listed subsidiaries — Scomi Energy Services Bhd and Scomi Engineering Bhd — via a share swap deal with free warrants.

“The proposal will strengthen the balance sheet of the group in the midst of a challenging business environment and facilitate its business expansion,” the company said in a media statement yesterday.

“It will also result in a reduction in administrative and operational expenses and dispense with the duplication that exists with three listed entities as all businesses will be housed under one listed company,” Scomi added, noting that the consolidation “should improve efficiency across its businesses”.

Scomi said the three-way merger with its 65.65%-owned Scomi Energy and 72.33%-owned Scomi Engineering is part of a member’s scheme of arrangement.

Under the arrangement, Scomi said it will consolidate its share capital on the basis of two existing shares into one share, after which it will issue seven new warrants for every 10 consolidated shares held.

Under the share swap arrangement, shareholders of Scomi Energy and Scomi Engineering will swap their respective shareholdings for new Scomi shares. “As a result, both Scomi Energy and Scomi Engineering will be wholly-owned by Scomi. Consequently, the listing status of both companies will be surrendered,” said Scomi.

Specifically, Scomi Energy shareholders will get three new Scomi shares for every five existing Scomi Energy shares they hold. The offer is sweetened with one warrant for every nine new Scomi shares issued to the shareholder.

The deal with Scomi Energy is valued at RM107.84 million, with an implied offer price of 13.4 sen per Scomi Energy share, which is a premium of 0.4 sen or 3.08% to its stock’s last traded price of 13 sen last Thursday.

Meanwhile, Scomi Engineering shareholders will get 10 new Scomi shares for every seven Scomi Engineering shares held, with one new warrant given for every 10 new Scomi shares issued to the shareholder. This values the deal at RM29.93 million, with an implied offer price of 31.6 sen per share, a 0.9 sen or 2.77% discount to Scomi Engineering’s closing price of 32.5 sen last Thursday.

The consolidation exercise, Scomi said, will broaden its shareholder base, resulting in a better shareholder spread.

“The new group structure will provide shareholders direct access to the group’s business going forward. For Scomi Energy and Scomi Engineering shareholders, the privatisation provides them the opportunity to realise [the] value of their equity at a premium and participate in future growth of the new [merged] group,” Scomi said.

Going forward, Scomi said it is optimistic that the consolidation exercise will provide it with a stronger financial base, which will also accord it with a group-wide flexibility to allocate resources among its business segments.

“This is the key to SGB’s (Scomi Group Bhd) goal to develop new growth areas, namely in renewables and chemicals,” it said.

Scomi and its two subsidiaries had the trading of their shares suspended from 2.57pm last Thursday until yesterday. Their shares are set to resume trading today.

Scomi was last traded at 11.5 sen, with a market capitalisation of RM220.51 million.