Parties to carry out mutual due diligence and discuss terms of the potential merger

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Keppel explores merger of Keppel O&M with Sembcorp Marine. (Credit: Keri Jackson from Pixabay)

Singapore-based Keppel has commenced talks with Sembcorp Marine with an intention to merge its offshore rig building business Keppel Offshore & Marine (Keppel O&M) with the latter.

Sembcorp Marine, which is also based in Singapore, is a marine and offshore engineering group.

According to Keppel, the objective of the talks is to establish a stronger combined entity, while creating sustainable long-term value shareholders of both Keppel O&M and Sembcorp Marine.

The companies have entered into a non-binding memorandum of understanding (MOU) for negotiations over the merger.

Both Keppel and Sembcorp Marine will carry out mutual due diligence and discuss the terms of the potential merger, which is likely to take several months.

If completed, the combined entity will be a listed entity.

Sembcorp Marine’s shareholders will have a stake in the enlarged firm, while Keppel will be issued shares and will also get a cash payment of up to S$500m ($372.7m).

The potential merger is being explored by the parties in response to the drastic changes in the offshore and marine (O&M) engineering and energy industries across the world.

As per the parties, oil exploration and development activities have reduced significantly in the recent years. The prolonged downturn in the sector has been worsened by the impact of the Covid-19 pandemic, the decline in oil demand and prices in 2020, and the energy transition away from oil across the world, said Keppel.

The parties expect the enlarged entity to be in a better position to pursue larger contracts and also synergies resulting from combined scale, geographic presence, and capabilities.

Both the firms are also said to be pivoting to the renewables sector.

Under the MOU, a joint venture will also be established between Keppel and the combined entity in order to enable Keppel to continue accessing Keppel O&M’s capabilities required for its projects.

The joint venture will be 50% owned by Keppel.

For the divestment the legacy rigs and associated receivables of Keppel O&M to a separate company that will be majority owned by external investors, Keppel has also signed a non-binding MOU with Kyanite Investment Holdings, a wholly owned subsidiary of Temasek.

Keppel had announced plans to exit the offshore rig building business in January 2021, as part of a restructuring programme. The Singaporean conglomerate at that time said that the exit from the business will be after completing rigs under construction.