SPC to acquire BPS’ Retail Network and LPG Business in Singapore
Posted: 6 July 2004
The Board of Directors of Singapore Petroleum Company Limited (“SPC” or the “Company”) is pleased to announce that the Company has entered into a conditional Put and Call Option Agreement with BP Singapore Pte. Limited (“BPS”), a wholly owned subsidiary of UK-based British Petroleum p.l.c. (“BP”), pursuant to which SPC has granted BPS a put option, and BPS has granted SPC a call option, for the acquisition by SPC of BPS’ retail marketing business, consisting of a network of 30 retail service stations in Singapore (“Retail Business”), the locations of which are set out in Appendix 1.
In conjunction with the above, SPC has also entered into a conditional Share Sale Agreement to acquire BPS’ 7,945,000 shares in BP-Wearnes Gas Pte. Limited (“BPW”), representing 70 per cent of the issued and paid up capital of BPW (the “BPW Shares”). BPW is a joint venture company between BPS and Wearnes Gas (Private) Limited (“Wearnes”), and carries on the business of bottling and distribution of Liquefied Petroleum Gas (LPG) in Singapore (“LPG Business”). The BPW Shares transaction will be undertaken through Singapore Petroleum Venture Pte Ltd (“SPV”), a wholly owned subsidiary of SPC.
The aggregate consideration for the acquisition of the Retail Business and the BPW Shares (collectively the “Proposed Acquisitions”) is US$70 million, and is payable on completion of the Proposed Acquisitions. The consideration was arrived at on a willing buyer willing seller basis, taking into account, the distribution network and the net present value of the incremental cash flow arising from the Proposed Acquisitions. The consideration for the BPW is not significant relative to the aggregate consideration.
As part of the Proposed Acquisitions, SPC and SPV will assume the relevant working capital at book value on completion, the amount of which is not significant.
SPC intends to fund the Proposed Acquisitions through internal resources and bank borrowings.
Conditions & Completion
The exercise of the call option by SPC or the put option by BPS for the Retail Business acquisition is conditional upon the approval of the relevant authorities to the transfer of the retail service station properties.
Completion of the BPW Shares acquisition is in turn conditional upon Wearnes, the other shareholder of BPW, not exercising its pre-emption rights under the Articles of Association of BPW.
The completion of the Retail Business acquisition and the BPW Shares acquisition are not inter-conditional.
As explained below under “Financial Effects”, since the proforma impact of the Proposed Acquisitions represents 17.2 per cent of SPC group’s profit before tax and the aggregate consideration amounts to approximately 9.8 per cent of the Group’s market capitalisation, shareholders’ approval for the transaction is not required.
Each acquisition is expected to complete by the end of the year when the conditions precedent for the Proposed Acquisitions are satisfied.
Rationale for Investment
The Directors believe that the Proposed Acquisitions will benefit the SPC group (“Group”) and enhance shareholder value as follows:
Broadening customer base and market coverage
The Group’s distribution outlets for motor-gasoline and diesel will expand considerably from an existing network of 10 stations to 40 stations in Singapore. Along with the LPG Business, the Group will also be able to enlarge its customer base, extend its geographic coverage, provide greater convenience and accessibility to customers and capture a larger share of the retail fuels market in Singapore.
Realising economies of scale and improving cost efficiency
The expansion of the Group's retail and LPG businesses in Singapore will enable it to realise better economies of scale in its operations. Overall, the Group will be able to further consolidate its procurement, administration, engineering and logistic functions with an enlarged network, resulting in improved cost efficiencies and enhanced competitiveness.
Enhancing brand awareness
The SPC brand of energy fuels is well recognised by consumers in Singapore. The enlarged distribution network and market reach will further strengthen SPC’s brand equity and awareness.
Earnings Accretive
The Proposed Acquisitions are expected to be earnings accretive to the Group as SPC is confident that it will be able to retain its existing motoring and LPG customers as well as attract new customers to its enlarged retail and LPG network.
Mr Koh Ban Heng, Chief Executive Officer of SPC, said, “The acquisition of BPS’ Retail and LPG Businesses is in line with the Group’s long-term strategy of growing and enhancing its downstream businesses.
“This acquisition is timely given the Company’s additional refining capacity that was recently acquired from BPS. The enlarged retail network and LPG business will provide the Group with a steady and long-term outlet for the refined products from its jointly owned refinery, Singapore Refining Company Pte Ltd (“SRC”).
“The additional 30 retail service stations island-wide and a wider distribution network for LPG will not only enhance SPC’s market presence and brand equity but also provide SPC better economies of scale in its operations.
“This is an excellent opportunity, one that is strategic to the creation of long-term shareholder value. I am confident that SPC will be able to use this platform to further grow the Group.”
Financial Effects of the Proposed Acquisitions
The proforma net profit before tax attributable to the Proposed Acquisitions would amount to S$12.2 million and represents 17.2 per cent of the Group’s profit before tax of S$70.7 million for the year ended 31 December 2003. Proforma earnings per SPC share would increase from 13.92 cents to 16.22 cents for the year ended 31 December 2003, assuming that the Proposed Acquisitions had been completed at the beginning of 2003.
The aggregate consideration of US$70 million for the Proposed Acquisitions amounts to approximately 9.8 per cent of SPC’s market capitalisation of S$1,226 million, based on the weighted average price of SPC’s shares transacted on 5 July 2004.
The Proposed Acquisitions will not have any material impact on the audited net tangible asset per SPC share as at 31 December 2003, assuming that the transactions had been effected on 31 December 2003.
None of the Directors of SPC and SPV or their respective controlling shareholders (so far as SPC is aware) has any interest, whether direct or indirect, in the Proposed Acquisitions.
Background Information
SPC is an associated company of Keppel Oil & Gas Services Pte Ltd, a wholly owned subsidiary of Keppel Corporation Limited.
BPS is a company incorporated in Singapore and is a wholly owned subsidiary of UK-based British Petroleum p.l.c.
BPW is a joint venture established in 1989 by BPS and Wearnes and its principal activities include the bottling, marketing, supply and distribution of LPG.
SRC is the operating company for an oil refinery situated on Jurong Island with a nameplate capacity of 285,000 barrels per day. SPC holds a 50 per cent interest in SRC.
SPC currently has 10 retail service stations in Singapore, located at Bukit Timah, Commonwealth, Hougang, Jalan Buroh, Market Street, Pasir Ris, Tuas, Upper Thomson, Yio Chu Kang and Yishun. With the acquisition, SPC will add 30 new stations to its network. BPS’ existing retail network consists of a combination of freehold and leasehold premises and sites under temporary occupational licences. Location details of BPS’ retail service stations are provided in Appendix 1.
For further information see http://www.kepcorp.com
Posted by Richard Price,
Editor Pipeline Magazine
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