The RM232 million is to be satisfied by RM46.2 million cash and RM185.8 million equivalent value of new ordinary shares of RM1 each in Sime Darby Engineering representing 20% of the ordinary shares in the enlarged Sime Darby Engineering.

AmResearch said that the offer price valued Ramunia at 42 sen per share or 1.6 times its book value of 26 sen per share as at end-January 2009 — lower than Kencana Petroleum Bhd’s current price over book value (P/BV) of 3.4 times.

“The offer price also suggested that Sime Darby Engineering is valuing Ramunia’s 170-acre fabrication yard at a mere RM1.4 million per acre — a far cry from the estimated valuation of RM5.1 million per acre or RM867 million under the previous deal with national carrier MISC Bhd,” it added.

AmResearch said Sime Darby’s offer appeared unattractive as the RM232 million offered is at a 33% discount to Ramunia’s market capitalisation of RM354 million or last traded price of 63 sen per share.

Furthermore, with only 20% of the offer in cash and the balance consideration in shares of Sime Darby Engineering, Ramunia shareholders would be exchanging their tradeable shares for stocks in an unlisted entity.

That said, there is a possibility Sime could have reached an agreement with Ramunia’s major shareholders. Lembaga Tabung Haji has a 29.68% equity interest in Ramunia while Ramunia Energy & Marine Corp Sdn Bhd has a 25.68% stake. These major shareholders may be willing to make an exit as Ramunia’s business prospects have deteriorated significantly over the past year with no new contracts to replenish its depleting order book.

If true, minority shareholders of Ramunia would be left with little choice but to accept Sime’s offer.

Ramunia suffered a net loss of RM280 million for the financial year ended Oct 31, 2008 and remained in the red with net loss of RM5.6 million for the first quarter ended Jan 31, 2009. The group had net debt of RM355 million or net gearing of 139% as at end-January 2009.

Nevertheless, a successful bid would be positive for Sime as it would be acquiring a Petronas-licensed fabrication yard at a bargain. It would also double Sime’s own 40-hectare yard which is fully utilised presently.

“Although Sime’s current share price of RM6.70 is higher than our sum-of-parts fair value of RM6.30, we are maintaining our hold recommendation. The recent rally in crude palm oil price would keep plantation stocks in focus and Sime being the largest plantation company and market capitalisation would certainly be a stock on foreign investors’ radar,” AmResearch said.

Sime Darby closed at RM6.65 yesterday, down five sen.

This article appeared in The Edge Financial Daily, May 6, 2009.