STX bought shares in Aker Yards from financial investors to become the Norwegian company's largest shareholder. The quantum of the purchase is significant as STX would have triggered a general offer to minority shareholders at the same price if it had crossed the 40% threshold stipulated under Oslo Stock Exchange rules. Sources close to the deal confirmed that it is a conscious decision by STX to stay below the 40% level.
ôSTX emphasises that it intends to remain as a significant minority shareholder in Aker Yards,ö says the company in a stock exchange filing. STX also clarified that it intends to review its strategic options and engage Aker Yards stakeholders in dialogue ôin due courseö.
STX was advised by ABN AMRO, ABG Sundal Collier and Socius Advisors on the share acquisition.
STX effected the acquisition via holding company Rambera AS (which is undergoing a name change to STX Norway). Rambera is owned by STX Shipbuilding and STX Engine, both affiliates of STX Corporation. Consolidated revenues for the STX group in 2006 were $8.3 billion, and are expected to grow to $11 billion in 2007.
STX is expected to deploy around $300 million of existing funds towards the share acquisition and raise $500 million of debt.
The 44,565,360 shares in Aker Yards were transacted at a price per share of NOK97 ($18) amounting to NOK4.3 billion, a 38% premium to the closing price of Aker Yards on the Oslo Exchange yesterday. Rambera has undertaken to compensate sellers on a krone-by-krone basis if it buys further shares in Aker Yards at a higher price within six months.
Aker Yards has 18 shipyards in Brazil, Finland, France, Germany, Norway, Romania and employs about 20,000 people. It specialises in building sophisticated ships for the offshore oil industry, merchant shipping and cruise and ferry services.
In March Aker, the largest shareholder in Aker Yards, decided to sell its 40.1% stake in the shipyard group through a bookbuild. In the rationale for the sale, Aker said: ôAker Yards is growing and developing well. Profits are rising and the shipyard group's order backlog is at a historic high. Greater share liquidity will benefit the company and Aker Yards' shareholders.ö The shares, which were acquired by a combination of Norwegian and international investors, were sold for around $475 million.
Just three months later, in July, Aker Yards reduced its earnings forecast for 2007 citing challenges in three Finnish yards, mainly related to ferry projects. At the time, the company said its Ebitda margin was estimated to be in the range of 5%-6% in 2008 on revenues of NOK35 billion. This was followed in August by an announcement of an operating loss of NOK153 million for the second quarter of 2007.
The acquisition is strategic in nature for STX as it broadens its capabilities from carriers to cruise liners and significantly bolsters its presence in Europe. Further, Aker Yards' revenue projections of $6.4 billion for 2008 are significant relative to the size of STX.
The implied firm value of Aker Yards based on the $800 million STX has paid is $2.3 billion. On forward sales, STX is paying a revenue multiple of 0.36 times.
And Aker Yards is confident of the future. It has consistently maintained in guidance to analysts that sales will stabilise in 2009 and that even if the number of vessels sold falls, the complexity of orders on hand will compensate. Aker Yards remains especially bullish on the high-end cruise ship market.
The Aker Yards board said it is currently considering the new information.
"We will now gather all relevant information in order to review the strategic alternatives available in order to maximize the value of Aker Yards,ö says chairman of the board, Svein Sivertsen, in a filing with the Oslo Stock Exchange. ôThe Board's main task is to consider the interest of all shareholders."
Aker YardsÆ shareholders welcomed the move by STX and its shares gained 18% to NOK83. UBS and BNP Paribas are currently the two largest shareholders of Aker Yards, with 7.97% and 7.49% respectively, as per information on the companyÆs website.
STX has paid a higher price than was paid six months ago for Aker Yard shares, but the Korean company has embarked on a diversification strategy which its shareholders rewarded by immediately pushing up its market capitalisation. STX Shipbuilding shares went up 15% to W68,000 ($74.17) while STX Engine gained 10% to W76,000.
And with analysts predicting that lower-cost Asian shipyards are the way forward, the opportunities to extract synergies from the acquisition seem high. Aker YardsÆ also seems set to benefit as its new largest shareholder will certainly put capital to work to create value in the Norwegian firm and justify its outlay.
The STX foray into Europe follows on the heels of a deal by Korea's Doosan Corp which bought three business units of Ingersoll Rand for $4.9 billion in July, the countryÆs largest ever cross-border outbound acquisition. Bankers had predicted at the time that Korean companies would start to pursue targets. Korean companies have grown to a size which gives them both confidence and critical mass to pursue and close M&A deals. Korean banks are flush with funds and eager to finance the overseas ambitions of local firms. Targets in some subprime affected markets are looking attractive and in other instances, such as this one, the benefits of a tie-up with an Asian company are compelling.
All the ingredients seem to be in place for cross-border outbound deals from Korea to gain further momentum.
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