Ezra

Ezra: ($1.185) Amalgamation of businesses to streamline offshore support capabilities Ezra proposed to consolidate its offshore support services division, EMAS Marine, into its Oslo-listed associate EOC. The enlarged EOC group will be one of the largest offshore support operators in the Asia Pacific by asset value, managing over 50 offshore support vessels worth over US$1b. Through a deal valued at US$520m, Ezra will inject its EMAS Marine unit into EOC, in exchange for US$150m cash and 280.1m new EOC shares issued at NOK8.18 each (NOK5.96 at last close). Post-deal, Ezra’s stake in EOC will rise from 45.7% to 84.6%, thereby promoting EOC to subsidiary status, and allowing Ezra to consolidate EOC’s financials. Separately, EOC is seeking a potential secondary listing on SGX Mainboard, to enable EOC to tap Asian investors who are more familiar with the Ezra and the EMAS branding. EOC will seek to raise an estimated US$250m from the proposed offering. Contemporaneously, Ezra will undertake a secondary sale of up to US$20m of its own EOC shares, at the same offer price as the above proposed offering, to existing shareholders in Norway. The proposals are subject to approval from SGX, and shareholders of EOC and Ezra. The transactions are expected to significantly improve Ezra’s balance sheet. Based on proforma FYAug13 numbers, management guides for Ezra’s net-debt-to-equity to fall from 1.07x to 0.72x, and for NTA per share to rise from US$0.92 to US$1.33. Ezra’s EPS however, is tipped to fall from US 5.51¢ to US 5.02¢. From a strategic point of view, EOC and EMAS Offshore are involved in broadly similar and overlapping businesses; hence consolidation of business units makes sense given the potential cost synergies that could be derived. Nevertheless, in the short term, investors may be concerned about the complexity of the deal, and the possibility for Ezra to book accounting losses on its newly acquired EOC stake, if the issue price of the secondary listing is significantly below the NOK8.18 deal transaction price. Ezra shares are down 0.4% at $1.185, valuing the stock at 17.8x annualized 1H14 P/E, and 0.8x P/B.