STX OSV

OCBC on 13 June 2012

STX OSV’s share prices slumped recently on rumours that (i) STX Corp will not seek a management premium on its stake sale, and (ii) when no MOU was announced for the supposed Fincantieri deal. Taking a closer look on the market rumours surrounding STX OSV, we argue that the some rumours could possibly be made to influence a particular outcome. In the event that no deal materializes, STX OSV remains a strong company with a good track record. With a PER of 6.5x and estimated dividend yield of at least 5%, we keep our BUY rating (FV unchanged at S$2.00) on the STX OSV.

Deal or no deal?
According to media reports, STX Corp has decided to sell its entire 50.75% stake in STX OSV to Italian shipbuilder Fincantieri and private equity firm Carlyle Group, and will sign a preliminary agreement with the buyers by the end of May 2012. The selling price was believed to be S$1.60 per share; this has resulted in the recent slump in STX OSV’s share price. However, nothing was announced to date, raising questions if the deal is already dead or still under negotiations.

Market rumours or mind games?
Faced with the plethora of market rumours surrounding STX OSV, we urge caution. M&A activities are highly confidential and it is unusual to have so many leaks. Therefore, the possibility that some rumours are made to influence a particular outcome cannot be ruled out. Parties in a deal (in general, not referring to STX OSV per se) may have conflicting interests and may seek ways to increase their bargaining positions, or weaken the opposing party’s positions. To illustrate, a seller would want buyers to believe that they are not desperate to sell so as to obtain a better pricing (and vice versa for buyers). Business rivals could also be interested in blocking a particular transaction for competitive reasons.

Maintain BUY; FV: S$2.00
STX OSV’s share prices slumped recently on rumours that (i) STX Corp will not seek a management premium, and (ii) when no MOU was announced for the supposed Fincantieri deal. We think the market has overreacted. Even if there is no deal, STX OSV remains a strong company with a good track record. With a PER of 6.5x and estimated dividend yield of at least 5%, we keep our BUY rating (FV unchanged at S$2.00) on the STX OSV.