As Singapore FPSO builder’s directors back its bid, South Korean shipbuilder closing in on takeover deal

The sweetened deal South Korea’s shipbuilder Hanwha Ocean made with an 11.67% rise in its final offer seems to have worked its magic, as the independent directors of Singapore-based offshore builder Dyna-Mac have recommended to shareholders to accept the cash offer, concurring with the advice and opinion its independent financial adviser (IFA), ZICO Capital, reached about Hanwha Ocean’s voluntary conditional cash offer for all the shares in the capital of the company other than the ones already owned, controlled or agreed to be acquired.

Within its advice to the independent directors, the IFA explained that it considered the views and representations made by the directors and management and reviewed and deliberated on the factors it deemed essential and balanced them before reaching its opinion. As a result, ZICO Capital claims that the fairness of the offer is reflected in the final offer price.

This represents a premia ranging between 18.58% to 67.50% over the respective volume-weighted average prices (VWAPs) of the shares for the 12-month, six-month, three-month, and one-month periods before, to, and including the last trading day, and a premium of 35.35% over the closing share price on the last trading day.

Having considered the available information and since the final offer price represents a premium of 7.20% over the highest traded share prices during the aforementioned intervals, the IFA concluded that the terms of the offer are “on balance, fair and reasonable,” thus, it advised the independent directors to recommend to shareholders to accept Hanwha Ocean’s offer.

After reviewing and considering the terms of the offer and ZICO Capital’s opinion and advice, the independent directors did as instructed and recommended to shareholders to accept the offer. However, any individual shareholder who may require specific advice concerning investment objectives or portfolios has been encouraged to consult their stockbroker, bank manager, legal adviser, accountant, tax adviser, or other professional adviser.

Hanwha Ocean revealed plans in September 2024 to make a voluntary conditional cash offer to secure management control of Dyna-Mac, after investing KRW 116 billion, or approximately $86.9 billion, in May 2024 to buy a 25.4% stake in the Singaporean firm. The initial offer announcement, made by the United Overseas Bank on behalf of the South Korean shipbuilder, proposed S$0.60, or around $0.46, in cash per share for all the issued and paid-up ordinary shares in the capital of Dyna-Mac.

Following the opposition from the largest shareholder of the Singaporean FPSO firm, the Estate of its founder Desmond Lim Tze Jong, which did not find the offer to be compelling, the South Korean firm revised the final offer price to S$0.67 or $0.51 for all the issued ordinary shares in the capital of Dyna-Mac, which is approximately an increase of 11.67% over the previous offer price. The closing date of the offer is currently November 6, 2024.

The revised offer is described as representing a unique opportunity to immediately realize investment at a premium over historical market prices without incurring brokerage and other trading costs, enabling a viable exit alternative for investors who want to avoid volatility and unpredictability due to the offshore plant industry’s cyclicality.

Based on the rationale for the offer, the market is expected to focus increasingly on global energy transition, which requires more development and investment in offshore upstream activities, as well as upgrading related infrastructure to meet green sustainability objectives.

Since the absence of economies of scale and technology to do so could make navigating the global energy transition more challenging, Hanwha Ocean intends to use advanced technology to provide solutions that will drive change if the takeover offer is successful and work with Dyna-Mac to extend the reach of digital transformation into yards, bringing to life smart yards, while delivering low and zero-carbon solutions that can power the energy transition.

Given the current low barriers to entry in the upstream market for the fabrication of offshore topside modules, it is believed that the Singapore player’s current scale could make it hard to defend its competitive position.

However, Hanwha Ocean claims that its acquisition may allow Dyna-Mac to become more resilient to intensified competition from players with superior scale by leveraging combined resources, including project management capabilities, engineering competencies, know-how, and best practices.

In addition, the combined company is anticipated to benefit from optimized operational efficiencies; capitalizing on greater capacity to invest in research and development (R&D), driving technological advancements and delivering long-term benefits to future innovation; and potential synergies that can be created, including economies of scale, improvement of productivity and cost efficiency, as well as the strengthening of domain knowledge.

Without the above, it is predicted that Dyna-Mac could face difficulties in maintaining its market position in an increasingly challenging competitive environment due to macroeconomic uncertainties, volatility in oil prices, and geopolitical risks.

Therefore, ownership under Hanwha is predicted to enable the FPSO builder to advance new technologies and investments in the Singapore energy market while preserving its status as a Singaporean home-grown enterprise.

Hanwha Ocean, which is in the process of implementing a multi-yard strategy with a presence in strategic locations – including Singapore, Korea, the U.S., and China – claims to be committed to empowering Dyna-Mac to be better-positioned locally, to foster innovation and progress in the offshore plant industry, as it believes that the company now requires global scale to continue its growth in the current industry landscape.

If the takeover goes through, the South Korean player intends to undertake a review of the business to identify areas in which the strategic direction and operations can be enhanced to ensure continuity of operations, further growth, and development.

Hanwha Ocean underlines that it has no intention to introduce any major changes to the existing businesses at this point, re-deploy the fixed assets, or discontinue the employment of existing employees.

Despite the hiatus in large floating production orders in Q1 2024, the long-term predictions show global demand for these units is poised to grow, as illustrated by 83 FPSO orders being expected by 2030, enabling the South Korean player to make more room for itself in this growing market with the acquisition of the Singapore player.